Loan Payment Calculator

Calculate the monthly payment for a loan using our simple loan calculator by entering the principal, interest rate, and term below.

$
%
find rate
$
%
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Monthly Payment:

$97.83
Total Interest:
$869.85
Total Payments:
$5,869.85
This calculation is based on widely-accepted formulas for educational purposes only - this is not a recommendation for how to handle your finances, and it is not an offer to lend. Consult with a financial professional before making financial decisions.
Learn how we calculated this below

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Bio image of Joseph Rich, MS

Joseph Rich holds a Master's degree in finance and a Bachelor's degree in economics. He specializes in economics and investing analysis.

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Reviewed by
Bio image of Laura Deimling, MBA

Laura started her career in Finance a decade ago and provides strategic financial management consulting. She has an MBA in Finance and a Bachelor's in Economics.

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How to Calculate a Loan Payment

Calculating the amount of a loan payment is an important first step for anyone considering taking out a loan.

You need to make sure that you will be able to pay back the loan. If the loan payments take up too much of an individual’s income, it could become a major burden.

Loan Payment Formula

The loan payment formula can be found below:

PMT = \frac{r \times PV}{1 − \left (1 + r \right )^{-n}}

Where:
PMT = payment
PV = remaining principal
r = periodic interest rate
n = number of payments

For example, let’s say someone is considering getting an auto loan with the following terms: $25,000 loan at 4% interest for 5 years.

First we need to adjust the numbers so they will work with the loan payment formula.

The formula requires a periodic (or monthly) interest rate so we need to divide the 4% interest rate by 12 months to arrive at a periodic interest rate of 0.3333%. Also, the number of payments is found by multiplying 5 years by 12 months = 60.

Let’s plug these numbers into the loan payment formula:

PMT = \frac{0.003333 \times \$25,000}{1 − \left (1 + 0.003333 \right )^{-60}}
PMT = \frac{\$83.33}{1 − 1.003333^{-60}}
PMT = \frac{\$83.33}{1 − 0.8206}
PMT = \frac{\$83.33}{0.181}
PMT = \$460.41

Under these circumstances, the monthly loan payment will be $460.41.

You can also use an amortization calculator to find the monthly payment and see how much of the monthly payment goes to principal and how much goes to interest.

What Factors Affect Loan Payments

The three factors that affect loan payments are the loan balance, interest rate, and term of the loan. Let’s look at each of these in more detail.

The remaining principal of a loan is also known as the loan balance. The higher the loan balance, the higher the monthly payment will be.

The reverse holds true for a lower principal. You should pay the largest down payment that you can on a loan in order to reduce the monthly payment.

The interest rate is another factor for the loan payment. Similar to the balance, the higher the interest rate, the higher the payment will be.

Factors that affect the interest rate are the borrower’s credit score, the income of the borrower, the term of the loan, and the interest rate environment or current economic environment.

The term, or total number of payments on the loan, is the final factor for loan payments. In this case, the higher the term, the lower the payment. And the lower the term, the higher the payment will be.

With a lower term, more money will need to be paid each month to pay off the loan in a shorter amount of time. Total interest will also be lower, and the interest rate will usually be lower with a shorter term loan because the lender is getting their money back sooner.

You can use our loan payoff calculator to see how long it would take to pay off a loan at different payment amounts.

Types of Loans

There are three main types of loans: real estate, consumer, and business.

Real estate loans consist of first mortgages and second mortgages. A first mortgage is when an individual initially gets a mortgage to buy a home. A second mortgage, or a home equity line of credit, is an additional loan on their house at a later point in time.

They could use this second mortgage by tapping into the equity of their home to make improvements on the house.

The second loan category is consumer loans. Consumer loans may consist of credit cards, auto loans, student loans, and personal loans.

The final type of loan is a business or commercial loan. These are loans that an individual uses to start or grow a business.

Overall, it’s important to understand how to calculate a loan payment and the different types of loans to ensure you understand what type of loan is right for you.

Frequently Asked Questions

Why is understanding the loan payment amount important?

It’s important to understand what a loan payment will be to ensure you are able to afford the loan. It’s also important to understand any hidden costs or fees that factor into a loan payment, so you understand the true cost of borrowing, and whether it is worth it to you or not.

What should you not do during the process of taking out a loan?

If you are currently awaiting approval on any type of loan, it’s generally a good idea not to make any large purchases, not to switch jobs, and be sure to pay any current loan payments on time.

Anything that can change your credit score or debt to income ratio is cautioned against during the process of obtaining a loan.

Are all types of loans equal?

All types of loans are not equal. Mortgage loans typically have the lowest interest rate because they have collateral if a borrower does not pay: the lender can take back the home and sell it.

Consumer loans tend to have a higher interest rate because they have no collateral, or less collateral, than a mortgage loan. Finally, business or commercial loans’ interest rates tend to also be higher than mortgage loans, but the viability of the business can also impact the interest rate.

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