How loan payments are worked out
Most personal, car and student loans are amortising: you pay the same amount every month, and each payment covers that month's interest first, with the rest paying down the balance. Early on, a big share of each payment is interest. By the end, almost all of it goes to the balance.
The monthly payment comes from the standard formula M = P × r ÷ (1 − (1 + r)−n), where P is the amount borrowed, r is the monthly rate (the APR divided by 12) and n is the number of monthly payments.
Example loan payments
| Loan | Rate and term | Monthly payment | Total interest |
|---|---|---|---|
| $10,000 personal loan | 8% for 5 years | $202.76 | $2,166 |
| $25,000 car loan | 7% for 5 years | $495.03 | $4,702 |
| $300,000 home loan | 6.5% for 30 years | $1,896.20 | $382,633 |
| $300,000 home loan | 6.5% for 15 years | $2,613.32 | $170,398 |
Ways to pay less interest
- Compare APRs, not just rates. The APR includes most fees, so it shows the real cost.
- Choose the shortest term you can afford. Fewer months means less time for interest to build.
- Pay a little extra each month. Use the extra payment box above to see how much it saves. Check your loan has no early repayment fee first.
- Improve your credit score before applying. A better score usually means a lower rate.
Buying a home? The mortgage calculator adds property tax, insurance and PMI. To see what you earn after tax, try the US paycheck or UK salary calculator.
Payments use the standard fixed rate amortisation formula. Real loans can differ because of fees, payment dates and how your lender rounds.
