Calculate your monthly loan payments, total interest, and total cost. Understand the true cost of borrowing before you commit.
Each monthly payment is split between principal and interest. Early in the loan, most of your payment goes toward interest. As time passes, more goes toward the principal.
Early payments favor interest; later payments favor principal
Given: $25,000 car loan at 6.5% APR for 5 years.
Solution:
P = $25,000, r = 0.065/12 = 0.00542, n = 60
M = 25000 × [0.00542(1.00542)60] / [(1.00542)60 - 1]
Monthly Payment = $489.15
Total Payments: $29,349.00
Total Interest: $4,349.00
Given: $10,000 personal loan at 12% APR for 3 years.
Solution:
P = $10,000, r = 0.12/12 = 0.01, n = 36
M = 10000 × [0.01(1.01)36] / [(1.01)36 - 1]
Monthly Payment = $332.14
Total Payments: $11,957.04
Total Interest: $1,957.04
Given: $35,000 student loan at 5.5% APR for 10 years.
Solution:
P = $35,000, r = 0.055/12 = 0.00458, n = 120
M = 35000 × [0.00458(1.00458)120] / [(1.00458)120 - 1]
Monthly Payment = $379.43
Total Payments: $45,531.60
Total Interest: $10,531.60
Given: $20,000 loan at 8% - compare 3-year vs 5-year terms.
3-Year Term:
Monthly: $626.73 | Total Interest: $2,562.32
5-Year Term:
Monthly: $405.53 | Total Interest: $4,331.67
Result: Longer term = lower payment but $1,769.35 more interest
Given: $100,000 business loan at 7.5% APR for 7 years.
Solution:
P = $100,000, r = 0.075/12 = 0.00625, n = 84
M = 100000 × [0.00625(1.00625)84] / [(1.00625)84 - 1]
Monthly Payment = $1,534.40
Total Payments: $128,889.60
Total Interest: $28,889.60
When you take out a loan, you agree to pay back the principal plus interest over a set period. Each monthly payment includes both principal and interest portions.
Loan amortization is the process of paying off debt over time through regular payments. Each payment reduces your principal balance while covering the interest owed.