Loan Calculator
Calculate monthly payments, interest, and amortization.
Understanding Loan Calculations
A loan calculator helps you understand the true cost of borrowing money. Whether you're considering a mortgage, auto loan, student loan, or personal loan, understanding how interest and payments work is essential for making informed financial decisions.
How Loan Payments Are Calculated
The monthly payment formula is:
M = P[r(1+r)^n]/[(1+r)^n-1]
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate / 12)
- n = Total number of payments (years × 12)
Example Calculation
Loan Details:
- Principal: $200,000
- Annual Rate: 4.5%
- Term: 30 years
Calculation:
- Monthly rate (r): 4.5% / 12 = 0.375% = 0.00375
- Number of payments (n): 30 × 12 = 360
- Monthly payment: $1,013.37
- Total paid: $364,813.20
- Total interest: $164,813.20
Types of Loans
Mortgage Loans
Home loans are typically the largest debt most people carry:
| Type | Term | Typical Rate |
|---|---|---|
| 30-year fixed | 30 years | 6-7% |
| 15-year fixed | 15 years | 5.5-6.5% |
| 5/1 ARM | 30 years (adjustable after 5) | 5-6% |
| FHA loan | 15-30 years | 6-7% |
| VA loan | 15-30 years | 5.5-6.5% |
Auto Loans
- New cars: 36-72 months, 4-7% APR
- Used cars: 36-60 months, 5-10% APR
- Down payment: Typically 10-20%
Personal Loans
- Term: 2-7 years
- Interest: 6-36% APR (based on credit)
- Amount: $1,000-$50,000
- Unsecured: No collateral required
Student Loans
- Federal: 4-7% fixed rates, 10-25 year terms
- Private: Variable or fixed, credit-based
- Repayment plans: Standard, graduated, income-driven
Understanding Amortization
Amortization is the process of paying off debt through regular payments over time. Each payment includes both principal and interest, but the proportion changes:
Early Payments
- Mostly interest
- Small principal reduction
- Balance decreases slowly
Later Payments
- Mostly principal
- Small interest amount
- Balance decreases quickly
First payment: $263.37 principal, $750 interest
Last payment: $1,009.57 principal, $3.79 interest
Factors Affecting Loan Costs
1. Interest Rate
Even small rate differences significantly impact total cost:
| Rate | Monthly Payment | Total Interest (30yr, $200K) |
|---|---|---|
| 3.5% | $898.09 | $123,312.40 |
| 4.5% | $1,013.37 | $164,813.20 |
| 5.5% | $1,135.58 | $208,808.80 |
| 6.5% | $1,264.14 | $255,090.40 |
2. Loan Term
Shorter terms mean higher payments but less total interest:
| Term | Monthly Payment | Total Interest ($200K @ 4.5%) |
|---|---|---|
| 15 years | $1,529.99 | $75,398.20 |
| 20 years | $1,264.36 | $103,446.40 |
| 30 years | $1,013.37 | $164,813.20 |
3. Down Payment
- Larger down payment = Lower principal = Less interest
- 20% down often avoids PMI (Private Mortgage Insurance)
- More equity from day one
Strategies to Save Money
1. Make Extra Principal Payments
Even small extra payments can save thousands in interest:
Example: $200K loan @ 4.5% for 30 years
- Regular payment: $1,013.37/month
- Extra $100/month: Saves $34,000 in interest, pays off 5 years early
- Extra $200/month: Saves $58,000 in interest, pays off 8 years early
2. Refinancing
Consider refinancing if:
- Interest rates drop by 0.5% or more
- Your credit score has improved significantly
- You want to switch from adjustable to fixed rate
- You want to shorten your loan term
3. Bi-weekly Payments
Pay half your monthly payment every two weeks:
- Results in 26 half-payments = 13 full payments per year
- One extra payment per year
- Can shorten a 30-year mortgage to ~26 years
Loan Considerations
Credit Score Impact
| Credit Score | Typical Rate | Monthly Payment (30yr, $200K) |
|---|---|---|
| 760-850 | 6.0% | $1,199.10 |
| 700-759 | 6.2% | $1,225.09 |
| 680-699 | 6.4% | $1,251.44 |
| 660-679 | 6.6% | $1,278.13 |
| 640-659 | 7.0% | $1,330.60 |
| 620-639 | 7.5% | $1,398.43 |
Additional Costs to Consider
- Closing costs: 2-5% of loan amount
- PMI: 0.5-1% annually (if less than 20% down)
- Property taxes: Varies by location
- Homeowners insurance: $500-$2,000+ annually
- HOA fees: If applicable
- Maintenance: Budget 1% of home value annually
Debt-to-Income Ratio
Lenders use DTI to determine how much you can afford:
DTI = (Total Monthly Debt Payments / Gross Monthly Income) × 100
- 28% or less: Front-end ratio (housing costs only)
- 36% or less: Back-end ratio (all debts)
- 43% maximum: For qualified mortgages
Common Loan Mistakes to Avoid
- Focusing only on monthly payment, not total cost
- Not shopping around for best rates
- Stretching to maximum loan amount approved
- Ignoring closing costs and fees
- Not considering future income changes
- Choosing adjustable rates without understanding risks
- Skipping pre-approval before house hunting
28/36 Rule
Lenders typically want:
- 28%: Housing costs ≤ 28% of gross income
- 36%: Total debt ≤ 36% of gross income
Typical Rates (2024)
- 30-yr mortgage: 6-7%
- 15-yr mortgage: 5.5-6.5%
- Auto loan: 4-7%
- Personal loan: 6-36%
- Credit card: 15-25%