FINANCE8 min read

How to Calculate Loan Payments: Complete Guide with Calculator

Understanding how loan payments work helps you make smarter borrowing decisions. Learn the formula, see real examples, and calculate your payments instantly.

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Loan Payment Formula

M = P × [r(1+r)^n] ÷ [(1+r)^n - 1]

M = Monthly payment • P = Principal (loan amount) • r = Monthly interest rate • n = Number of payments

Real Example: $250,000 Mortgage

Loan Amount
$250,000
Interest Rate
6.5%
Term
30 Years
Monthly Payment
$1,580
Total Interest Paid
$318,861

Over 30 years, you'll pay more in interest than the original loan!

15-Year vs 30-Year Mortgage

Comparison15-Year30-Year
Monthly Payment$2,177$1,580
Total Interest$141,858$318,861
Interest Savings$177,003 with 15-year!

5 Ways to Pay Less Interest

1
Make extra payments
Even $100/month extra can save thousands and years
2
Choose shorter terms
15-year loans have lower rates than 30-year
3
Refinance when rates drop
Even 0.5% lower rate saves significant money
4
Make bi-weekly payments
26 half-payments = 13 full payments per year
5
Round up payments
Round $1,580 to $1,600 pays off loan faster

Frequently Asked Questions

How is loan interest calculated?

Loan interest is calculated on your remaining balance. Each payment covers interest first, then principal. This is called amortization.

Why is most of my payment going to interest?

In early years, your balance is highest so interest is highest. Over time, more goes to principal. This is normal amortization.

Should I pay off my loan early?

Usually yes, if no prepayment penalties. Each extra payment reduces principal and future interest. Check if investing the money earns more than your loan rate.

What's a good interest rate?

Depends on the loan type and market conditions. In 2024, good mortgage rates are 6-7%, personal loans 8-15%, and auto loans 5-8%.

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