How this works
Most installment loans — personal, auto, student, business — use the same formula your bank does: a fixed monthly payment that pays off both interest and principal over a set number of months. Early payments are mostly interest; later ones are mostly principal. Plug in the loan amount, the annual rate, and the term in years to see your payment, the total interest you'll pay, and the total cost over the life of the loan.
The formula
M = monthly payment. P = principal (loan amount). r = monthly interest rate (annual rate ÷ 12, as a decimal — 7.5% → 0.00625). n = total number of payments (years × 12).
Example calculation
- You borrow $25,000 at 7.5% annual interest over 5 years (60 monthly payments).
- Monthly rate r = 7.5 / 100 / 12 = 0.00625. Number of payments n = 60.
- Monthly payment ≈ $501. Total paid ≈ $30,065. Total interest ≈ $5,065.
Frequently asked questions
Does this work for any loan type?
Yes for any fixed-rate amortizing loan: personal loans, auto loans, student loans, small-business loans, even mortgages (use our dedicated mortgage calculator if you also want tax and insurance). It does not handle variable-rate loans or interest-only periods.
How much can extra payments save me?
Often a lot — every extra dollar goes straight to principal, which means less interest in every future month. On a 5-year, $25k loan at 7.5%, paying just $50 extra a month finishes the loan ~10 months early and saves around $500 in interest. Check your loan agreement for prepayment penalties first.
Why is the total interest so much higher than I expected?
Because the rate is annual but applies every year. A 5-year loan at 7.5% doesn't cost 7.5% — it costs roughly 7.5% × 5 / 2 of the loan amount in total interest (the / 2 because the balance shrinks over time). Longer terms make the gap between "rate" and "total interest" much wider.
Should I pick a shorter or longer term?
Shorter terms mean higher monthly payments but much less total interest. Longer terms mean lower monthly payments but more total interest and a higher chance of being upside-down (owing more than the asset is worth) on auto loans. Pick the shortest term whose monthly payment fits your budget with breathing room.