How To Calculate Loan Payments And Costs

Credit: Rockaa/GettyImages; Illustration by Hunter Newton/Bankrate

There are two ways to calculate loan payments. One tests your math skills with a basic loan calculation formula. The other — and more common — method is to use any of the dozens of online loan calculators offered to crunch the numbers on a personal loan, auto loan or mortgage. Using a loan calculator can give you a general idea of what to expect with any type of loan payment without filling out an application.

How to calculate loan repayment

The easiest way to calculate your personal loan payment is to use an online loan calculator. This can give you a general idea of what to expect with your monthly payment without filling out an application. Try different loan terms, interest rates and amounts to see the differences in cost, especially if you have already prequalified for a loan and know your offer. You can also opt to use an interest formula if you prefer to do the math by hand.

Most loans are amortizing loans. These apply some of your monthly payment toward your principal balance and interest. Your principal amount is spread equally over your loan repayment term. While you may choose the number of years in your term, you’ll typically have 12 payments each year.

How to use an amortizing loan repayment formula

To calculate how many payments you’ll make in your loan term, multiply the number of years by 12. Let’s say you took out an auto loan for $20,000 with an APR of 6 percent and a five-year repayment timeline. Here’s how you would calculate loan interest payments.

1. Divide your interest by the number of payments you’ll make each year. Usually, the number is 12 — one payment per month.

2. Multiply that figure by the initial balance of your loan, which should start at the full amount you borrowed. For the figures given, the loan payment formula would look like:

In this example, you’d pay $100 in interest in the first month. As you continue to pay your loan off, more of your payment goes toward the principal balance and less toward interest. You can figure out each month’s principal and interest payments and see how your loan balance drops with each payment with an amortization schedule.

• Sample amortization schedule
  

  	Starting balance	Monthly payment	Paid toward principal	Paid toward interest	New balance
  Month 1	$20,000	$387	$287	$100	$19,713
  Month 2	$19,713	$387	$288	$99	$19,425
  Month 3	$19,425	$387	$290	$97	$19,136
  Month 4	$19,136	$387	$291	$96	$18,845
  Month 5	$18,845	$387	$292	$94	$18,552
  Month 6	$18,552	$387	$294	$93	$18,258
  Month 7	$18,258	$387	$295	$91	$17,963
  Month 8	$17,963	$387	$297	$90	$17,666
  Month 9	$17,666	$387	$298	$88	$17,368
  Month 10	$17,368	$387	$300	$87	$17,068
  Month 11	$17,068	$387	$301	$85	$16,767
  Month 12	$16,767	$387	$303	$84	$16,464

How loan payments work

Personal loans are a type of installment loan, which means they are paid on a fixed schedule over several months or years until paid in full. A portion of each payment goes toward your outstanding loan balance and any accrued interest, known as amortization.

Three elements make up your monthly personal loan payment:

The total cost of a loan depends on the interest rate you qualify for, the amount you borrow, how many years you choose to pay it back and the upfront fees you pay. The APR — annual percentage rate — of your loan is important because it reflects the total amount you’ll pay between interest and fees.

Loan interest rate vs. APR

Your monthly payments are based off your interest rate, not your APR. The APR of your loan includes any upfront fees you need to pay, such as an origination fee, but it won’t impact the amount you pay in interest unless you choose to wrap the fee into the loan rather than having it deducted from your total amount.

For example, compare two $20,000 loans. Both have 60-month terms and an interest rate of 12.26 percent, which is the average personal loan rate as of May 2025. Lender A has a 5 percent origination fee, so when you borrow, you will receive $19,000 rather than the full $20,000. Lender B does not have an origination fee.

While the total amount of interest you pay is the same, you will wind up paying more with Lender A. Be sure to balance the monthly payment against the total cost of the loan when using a calculator to be sure you’re getting the best option for your budget.

Calculators for estimating potential costs

If you’re not a fan of complicated math formulas, let a loan calculator do all the hard work. Whether you’re buying a house and need a mortgage or need quick cash from a personal loan to pay for an emergency car repair, there’s a calculator available for you to crunch numbers.

How to use loan payment calculations

Since the calculator does most of the work for you, it’s helpful to know when these loan calculations can come in handy for your money plans.

• Compare payments: If the payment on a three-year term makes you nervous, consider making extra payments on a five-year term instead. You won’t save as much if you revert to your five-year payment, but you’re also not locked into the higher short-term payment. Just make sure there are no early repayment penalties with your lender.
• Compare total interest: The repayment term can impact the total cost of your loan. A longer term means you pay less monthly but more in interest over the life of the loan.
• Figure out your no-fly zone early: You may be surprised by how high — or how low — the payments are for a personal loan. You’re better off knowing what the payments look like ahead of time than at the last minute when you need cash fast so you don’t overborrow if there’s a financial crisis in your life.

Bottom line

It’s best to calculate loan payments and costs long before you need the money. Because personal loan rates can vary from 6.5 percent to almost 36 percent, it’s important to at least have a ballpark idea of what the payments look like ahead of time.

Getting the lowest payment may not always be the best choice for your finances. Watch for differences between quoted interest rates and APRs so you don’t take out a loan with high fees. The lowest rate may not be the best deal if it comes with expensive origination costs.