How loan payments work
This loan payment calculator uses the standard amortization formula to compute a fixed monthly payment that covers both principal and interest over the full term:
Payment = P × [r(1+r)n] / [(1+r)n − 1]
P = loan amount, r = monthly rate, n = total months
Each payment, interest is charged on the remaining balance first. The rest goes toward principal. As the balance shrinks, more of each payment goes to principal, this is why extra payments early in the loan save the most interest.
Loan comparison table
Monthly payments for a $25,000 loan at different rates and terms:
| Rate | 3 years | 4 years | 5 years |
|---|---|---|---|
| 5% | $749 | $576 | $472 |
| 7% | $772 | $599 | $495 |
| 9% | $795 | $622 | $519 |
| 11% | $818 | $646 | $544 |
| 15% | $867 | $696 | $595 |
How extra payments save money
Extra payments go entirely toward principal, shrinking your balance faster and reducing future interest charges. Here's a $25,000 loan at 9% for 5 years:
No extra payment: $519/month, 60 months, $6,121 total interest.
+$100 extra/month: $519+$100, pays off in 44 months (16 months early), $4,297 interest, saves $1,824.
+$200 extra/month: $519+$200, pays off in 35 months (25 months early), $3,301 interest, saves $2,820.
Tip: Use the loan payoff calculator above, enter your current loan details and try different extra payment amounts to find what fits your budget.
Types of loans
| Loan Type | Typical Rate | Typical Term |
|---|---|---|
| Personal loan | 6%–36% | 1–7 years |
| Auto loan | 4%–12% | 3–7 years |
| Home improvement | 5%–15% | 2–12 years |
| Student loan (federal) | 6.52%–9.07% (2026-27) | 10–25 years |
Fixed vs. variable rate
Fixed rate
Rate and payment stay the same for the entire loan. Predictable budgeting. Usually slightly higher initial rate. Best for longer terms (5+ years).
Variable rate
Rate adjusts periodically with market. Lower starting rate. Payment can increase over time. Risky for long terms. Best for short-term loans you plan to pay off quickly.
FAQs
How do you calculate a loan payment?
Put three numbers into M = P × [r(1+r)^n] / [(1+r)^n − 1]: P is the amount borrowed, r is the annual rate divided by 12, and n is the number of monthly payments. For $20,000 at 6% over 5 years, r = 0.005 and n = 60, which gives $386.66 a month and $3,199.35 of interest over the loan (each month's interest rounded to the cent, as a lender's schedule does). Each payment covers that month's interest first ($100 in month one) and the rest cuts the balance, so the principal share grows as the balance shrinks, while the payment itself never changes.
How does interest rate affect my payment?
Higher rates mean higher monthly payments and significantly more total interest paid. On a $25,000 loan for 48 months: at 5% interest you pay $576/month ($2,635 total interest). At 15% you pay $696/month ($8,397 total interest), $120/month more and $5,762 more in total interest. Even 1–2% difference matters on larger loans.
Should I make extra payments on my loan?
Extra payments go directly toward principal, reducing both the loan term and total interest paid. Even $50–$100 extra per month can save thousands in interest and shave months or years off the payoff date. Use the extra payment field above to see the exact impact. The higher your interest rate, the more you save with extra payments.
What is loan amortization?
Amortization is the process of paying off a loan through regular equal payments over time. Each payment splits between interest (on the remaining balance) and principal (reducing the balance). Early payments are mostly interest; later payments are mostly principal. The amortization schedule shows this split month by month or year by year.
What is the difference between fixed and variable rate?
A fixed rate stays the same for the entire loan term, your payment never changes. A variable (adjustable) rate can change periodically based on market conditions. Fixed rates are higher initially but offer predictability. Variable rates start lower but can increase significantly. For shorter loans (under 5 years), variable rates often work out; for longer terms, fixed is safer.
How can I get a lower interest rate?
Improve your credit score (pay bills on time, reduce utilization below 30%), shop multiple lenders (at least 3–5 quotes), consider a shorter loan term, make a larger down payment on secured loans, apply with a co-signer, or look into credit union rates (often 1–3% lower than banks). Timing also matters, rates fluctuate with the federal funds rate.
What is APR vs. interest rate?
The interest rate is the cost of borrowing the principal. The APR (Annual Percentage Rate) is a broader measure of the cost of credit as a yearly rate: the interest plus most finance charges, such as points and origination and broker fees (Regulation Z leaves some out, like late fees and, on home loans, title and appraisal fees). The APR is usually higher than the interest rate, though a subsidized buydown can make it lower. When comparing loans, use APR for a true apples-to-apples comparison since it reflects more of the cost of borrowing.
How does loan term affect total cost?
Shorter terms have higher monthly payments but much lower total interest. On $25,000 at 7%: a 3-year loan costs $2,789 in interest with $772/month payments. A 5-year loan costs $4,702 in interest with $495/month payments. The 5-year option costs $1,912 more in total interest but $277/month less. Choose based on cash flow vs. total cost priorities.
What is a good interest rate for a personal loan?
Personal loan rates in 2026 range from about 6% (excellent credit, 750+) to 36% (poor credit, below 600). A "good" rate is: 6–10% for excellent credit (750+), 10–15% for good credit (700–749), 15–20% for fair credit (650–699). Rates above 20% should prompt you to explore alternatives like credit union loans or secured loans.
Can I pay off a loan early without penalty?
Most personal loans and auto loans have no prepayment penalty, and federal law bars one on federal and private student loans. A mortgage applied for since January 10, 2014 can carry one only if it's a fixed-rate qualified mortgage that isn't higher-priced, and then at most 2% of the amount prepaid in the first two years, 1% in the third, and nothing after (Regulation Z, 12 CFR 1026.43(g)). Some other loans may charge a percentage of the balance or a few months' interest. Always check your loan agreement for a prepayment clause before making large extra payments.