When taking out a loan, it’s essential to understand how much you’ll have to pay each month. This can help you better compare lenders and decide whether an interest-only or amortized loan is the best fit. While it’s possible to calculate loan payments on your own, numerous loan payment calculators are available for many of the most common types of loans.
Here’s what you need to know about calculating loan payments and where to find the best loan payment calculators.
How Loan Payments Work
Most loans require monthly payments over a set period—the loan term. These payments go toward the loan principal (the amount you initially borrowed) and the interest (the cost of borrowing the money). The amount of your monthly payment depends on the terms of your loan, including the interest rate, repayment term and amortization schedule.
The main factors that impact loan payments are:
- Principal. The loan principal is the total amount you borrowed.
- Interest rate. Interest is what lenders charge consumers to borrow money. Annual percentage rates (APRs) include annualized interest as well any fees or additional costs of borrowing, like origination fees. Interest rates are more competitive for borrowers with excellent credit because they pose less risk to lenders.
- Fees. Depending on the lender, additional fees may include origination fees, late fees, insufficient funds fees and prepayment penalties.
- Repayment term. A shorter loan term means higher monthly payments, but interest has less time to accrue. A longer loan term comes with lower monthly payments but more interest overall.
Extra Payments
Making extra payments on top of what you’re required to pay can help you repay your loan faster and save money in the long run. If you put these additional funds toward the loan’s principal balance, you will reduce the interest you owe over time.
If you want to make extra payments on your loan, check with your lender first. It may be necessary to request that extra payments be applied to the principal. Some lenders also charge prepayment penalties that will increase the overall cost of your loan if you pay it off early, while others may limit the number of additional payments you can make each year.
Loan Payment Formula
Borrowers can use the loan payment formula to calculate the monthly payment of a loan. You’ll need to know the interest rate, loan amount and loan term. Keep in mind that this can be used for any type of loan, including personal loans, car loans, student loans and mortgages.
Once you have all the necessary information, you can plug it into the formula and calculate your monthly payment.
Interest-only Loans
An interest-only loan is a type of loan where you only make payments toward the interest for a certain period. The amount you owe in principal doesn’t change during this period, so your monthly payments are lower than they would be with a traditional, amortized loan.
To calculate interest-only loan payments, multiply the loan balance by the annual interest rate, and divide it by the number of payments in a year. For example, interest-only payments on a $50,000 loan with a 4% interest rate and a 10-year repayment term would be $166.67.
Interest-only loans can be helpful if you need to keep your payments low in the near term. However, they also have some risks. Because you’re not paying off your loan’s principal balance, you’ll pay more in interest overall. Additionally, if the value of your collateral decreases, you could end up owing more than it is worth.
Amortizing Loans
An amortizing loan is a type of loan where the monthly payments are applied to both the principal balance and the interest. This means that each payment reduces the amount you owe in both areas.
Calculating payments based on an amortization schedule is more complex than interest-only loans. Payments for fully-amortized fixed-rate loans are set using amortization tables and provided by the lender at the beginning of a loan. If you want to know what your expected payment will be, use one of the calculators provided below.
Consider the same $50,000 loan from above. In this case, the monthly payment is $506.23 for the entire repayment period—about three times the interest-only payment. Here’s the amortization table for the first year of this loan:
| Starting loan balance | Interest payment | Principal payment | New loan balance | |
|---|---|---|---|---|
| Month 1 | $50,000.00 | $166.67 | $339.56 | $49,660.44 |
| Month 2 | $49,660.44 | $165.53 | $340.70 | $49,319.74 |
| Month 3 | $49,319.74 | $164.40 | $341.83 | $48,977.91 |
| Month 4 | $48,977.91 | $163.26 | $342.97 | $48,634.94 |
| Month 5 | $48,634.94 | $162.12 | $344.11 | $48,290.83 |
| Month 6 | $48,290.83 | $160.97 | $345.26 | $47,945.57 |
| Month 7 | $47,945.57 | $159.82 | $346.41 | $47,599.16 |
| Month 8 | $47,599.16 | $158.66 | $347.57 | $47,251.59 |
| Month 9 | $47,251.59 | $157.51 | $348.72 | $46,902.87 |
| Month 10 | $46,902.87 | $156.34 | $349.89 | $46,552.98 |
| Month 11 | $46,553.98 | $155.18 | $351.05 | $46,201.93 |
| Month 12 | $46,201.93 | $154.01 | $352.22 | $45,849.71 |
Calculate Loan Payments Using Calculators
The easiest way to calculate loan payments is with an onlineloan calculator. These tools let prospective borrowers plug in the necessary information to get an estimated monthly payment.
Personal Loan Calculator
Personal loan calculators are a way to estimate the monthly payment on apersonal loan. Not only does this help you calculate what you can afford to borrow, but it also makes it easier to compare lenders to find the lowest monthly payment.
Typically, with a personal loan calculator, input the loan amount, annual interest rate and repayment term in months or years. After you input this information, the calculator will estimate your monthly payment, how much you’ll pay in interest and the total amount paid over the loan term. Remember that this is just an estimate, so your actual payment may differ.
Student Loan Calculator
For many, student loans are the only way to pay for college—but they can have far-reaching impacts on your finances for many years to come. A student loan calculator can help you understand the implications of borrowing and show you how additional payments impact your budget and payment horizon.
Enter your loan amount, interest rate, loan term and additional monthly payment amount into the calculator. Based on this information, you’ll see your estimated monthly payment and estimated payoff month. You’ll also see the total interest paid over the course of repayment and the total amount paid.
Mortgage Calculator
Using ourmortgage calculatorcan take some of the mystery out of financing a house—especially for first-time homebuyers. To use it, enter the home price, down payment (as a dollar amount or percentage), interest rate and loan term in years.
A mortgage calculator can help you determine how much you can afford to spend on a home. It also makes it easier to see how different down payment amounts affect monthly payments. The best mortgage calculators also create a complete amortization schedule so you can see your possible loan payments over time.
HELOC Calculator
A home equity line of credit (HELOC) calculatorlets you see how much you’re likely to qualify for through a HELOC. Calculations are based on your credit score, current home value and outstanding mortgage balance.
Once you enter the information, the calculator will tell you how much you may be able to borrow and your currentloan-to-value (LTV) ratio. Lenders generally allow a maximum LTV ratio of 80%, so HELOC calculators can help you better understand your approval odds.
Home Equity Loan Calculator
Home equity loan calculators can help you evaluate your approval odds and show you how much you may be able to borrow. To use the Forbes Advisorhome equity loan calculator, enter your current home value, outstanding mortgage balance and credit score.
As with the HELOC calculator, you’ll be able to see your current LTV ratio and the amount you may be able to borrow against your home equity.
Auto Loan Calculator
An auto loan calculator can help you determine how much you can afford to pay for a vehicle—and offer insight into how much you’ll pay in interest over the life of your loan. Enter your credit score, the price of the car, the interest rate and the loan term in months or years. Where applicable, also enter the trade-in value of your current vehicle or the down payment you plan to make.
The calculator will show you how much you’ll pay in interest each month and the total interest paid over time. You’ll also see the total amount you’ll pay over the life of the loan, including both loan principal and interest. Depending on the auto loan calculator you use, it may also generate annual and monthly amortization schedules.
If you’re not comfortable using a calculator, talk to your lender. It can estimate your monthly payments based on relevant loan details.
Related: Best Personal Loans In Canada
