How to use the loan calculator
- Enter the amount you want to borrow.
- Enter the yearly interest rate. Use the APR from the lender's quote for the most realistic figure.
- Enter the term, and choose whether it is in years or months. Car loans are usually quoted in months (36, 48, 60 or 72).
The result shows the fixed monthly payment, the total interest and the total you will repay. Open the schedule to see how much of each year's payments goes to interest and how much reduces the balance.
The loan payment formula
M = P × r ÷ (1 − (1 + r)−n)
P is the amount borrowed, r the monthly rate (yearly rate ÷ 12) and n the number of monthly payments. This is the standard formula for an amortizing loan with fixed, equal payments, and it is the one lenders in the US, UK, Canada and the Netherlands use for personal and car loans.
Worked example: a $25,000 car loan at 7.5% over 5 years (60 months) has a monthly payment of $500.95. You repay $30,056.92 in total, so the loan costs $5,056.92 in interest.
APR, interest rate and fees
The interest rate is what the lender charges on the balance. The APR (in the Netherlands, the JKP or jaarlijks kostenpercentage) also includes certain required fees, so it is the better figure for comparing offers. If a lender charges an arrangement fee that is added to the loan, include it in the loan amount for a more accurate payment.
Pro-tip: a shorter term raises the monthly payment but cuts the total interest sharply. On the example above, a 3-year term costs about $778 a month but only about $2,996 in interest.
Limitations: the result assumes a fixed rate, payments on time, and no early repayment. Credit cards, payday loans and interest-only loans work differently. Check the lender's official cost disclosure before you sign.
Frequently asked questions
How do I calculate a monthly loan payment?
Use M = P × r ÷ (1 − (1 + r)^−n), where P is the loan amount, r the monthly interest rate (yearly rate ÷ 12) and n the number of months. For $25,000 at 7.5% over 60 months, that gives $500.95.
Should I enter the APR or the interest rate?
Use the APR if the lender gives one, because it includes certain required fees and gives a more realistic cost. If the fee is added to the loan balance instead, add it to the loan amount.
How much interest will I pay in total?
Multiply the monthly payment by the number of payments and subtract the amount borrowed. The calculator shows this as total interest.
Does paying extra each month save money?
Yes. Extra payments reduce the balance faster, so less interest builds up. Check first that your lender does not charge an early repayment fee.