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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How to Calculate a Loan Payment

Calculating the amount of the 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.

But we first 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 as large a down payment as you can on a loan 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.

The term, or number of payments of 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.

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.

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