Basic Loan Calculator
Calculate your loan payments, total interest, and view your loan amortization schedule.
What is an Amortizing Loan?
An amortizing loan is a type of loan with scheduled, periodic payments that consist of both principal and interest. Each payment pays down the loan balance and covers the interest due, with the proportion of principal to interest changing over time.
Key Concept:
In an amortizing loan, early payments are mostly interest while later payments are mostly principal. The total payment amount remains the same throughout the loan term, but the allocation changes.
Calculator
Results
Monthly Payment
Total Payment
Total Interest
Visual Comparison
Principal vs. Interest Over Time
Principal Payments
- Reduce the loan balance directly
- Increase over time as the loan matures
- Build equity in the asset (for secured loans)
- Not affected by interest rate changes on fixed-rate loans
Interest Payments
- Represent the cost of borrowing money
- Decrease over time as the principal balance reduces
- Higher in the early years of the loan
- May be tax-deductible in some cases (e.g., mortgage interest)
How It Works
The Basic Loan Calculator uses the following formula to calculate the monthly payment:
P = L[c(1 + c)^n]/[(1 + c)^n - 1]
Where:
- P = Monthly payment
- L = Loan amount
- c = Monthly interest rate (annual rate divided by 12)
- n = Total number of months (years * 12)
Understanding Amortization:
Amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment is allocated between the principal and interest, with the exact amount going to each changing over the life of the loan. Early payments are mostly interest, while later payments are mostly principal.
This calculator assumes a fixed interest rate and equal monthly payments over the life of the loan (amortizing loan).
How to Use
- Enter the total loan amount you wish to borrow.
- Input the annual interest rate as a percentage.
- Specify the loan term in years.
- The calculator will automatically update the results based on your inputs.
- Review the monthly payment, total payment, and total interest. The chart shows how the loan balance and total interest paid change over time.
- Compare different loan scenarios by adjusting the loan amount, interest rate, or term to find the best option for your financial situation.
Frequently Asked Questions
Comprehensive Guide
Types of Loans and Their Characteristics
Secured Loans
Secured loans are backed by collateral (an asset that the lender can take if you fail to repay the loan). Common examples include mortgages (secured by your home) and auto loans (secured by your vehicle). Because they're less risky for lenders, secured loans typically offer lower interest rates and higher borrowing limits.
Unsecured Loans
Unsecured loans don't require collateral and are based primarily on your creditworthiness. Personal loans and credit cards are common examples. These loans typically have higher interest rates than secured loans because they pose more risk to lenders. Approval and terms depend heavily on your credit score and income.
Loan Structures and Payment Methods
Common Loan Payment Structures
- Fully amortizing: Equal payments throughout the loan term, with each payment covering interest and reducing principal
- Interest-only: Payments cover only interest for a period, followed by principal and interest payments or a balloon payment
- Balloon payment: Smaller regular payments with a large final payment (the "balloon")
- Adjustable-rate: Interest rate changes periodically, affecting payment amounts
- Graduated payment: Payments start small and increase over time
- Biweekly payment: Half of the monthly payment made every two weeks (results in one extra payment per year)
Factors That Affect Loan Affordability
Several factors determine how affordable a loan will be for you:
- Debt-to-income ratio (DTI): The percentage of your monthly income that goes toward debt payments. Most lenders prefer a DTI of 36% or less.
- Credit score: Higher scores qualify you for better interest rates, potentially saving thousands over the life of the loan.
- Down payment: A larger down payment reduces the loan amount, resulting in lower monthly payments and potentially better interest rates.
- Loan term: Longer terms reduce monthly payments but increase total interest paid.
- Interest rate type: Fixed rates provide payment stability, while adjustable rates may start lower but can increase.
The 28/36 Rule:
A common guideline for loan affordability is the 28/36 rule: housing costs should not exceed 28% of your gross monthly income, and total debt payments should not exceed 36%.
Strategies for Paying Off Loans Faster
Paying off your loan ahead of schedule can save you significant money in interest:
- Make biweekly payments: Instead of 12 monthly payments per year, make 26 half-payments, effectively making 13 full payments annually.
- Round up payments: If your payment is $843, pay $900 instead, with the extra $57 going directly to principal.
- Apply windfalls: Use tax refunds, bonuses, or other unexpected income to make lump-sum payments toward principal.
- Refinance to a shorter term: If interest rates have dropped, consider refinancing to a shorter loan term.
- Make one extra payment per year: An additional payment each year can significantly reduce your loan term.
Example:
On a $300,000 30-year mortgage at 4%, making just $100 extra per month would save about $30,000 in interest and pay off the loan 5 years earlier.
Comparison Tables
Loan Term Comparison
| Loan Term (Years) | Monthly Payment | Total Interest | Total Payment |
|---|---|---|---|
| 15 | $790.79 | $42342.85 | $142342.85 |
| 20 | $659.96 | $58389.38 | $158389.38 |
| 30 | $536.82 | $93255.78 | $193255.78 |
Based on $100000 loan at 5% interest rate
Common Loan Types Comparison
| Loan Type | Typical Interest Rates | Typical Terms | Secured? | Common Uses | |
|---|---|---|---|---|---|
| Mortgage | 3% - 7% | 15, 20, or 30 - 7% | 15, 20, or 30 years | Yes (by the property) | Home purchase, refinancing |
| Auto Loan | 3% - 10% | 3 - 7 years | Yes (by the vehicle) | Vehicle purchase | |
| Personal Loan | 6% - 36% | 1 - 7 years | No (typically) | Debt consolidation, major expenses | |
| Student Loan | 3% - 13% | 10 - 25 years | No | Education expenses | |
| Home Equity Loan | 4% - 8% | 5 - 30 years | Yes (by the property) | Home improvements, major expenses | |
| Credit Card | 15% - 24% | Revolving | No | Everyday purchases, emergencies |
Note: Rates and terms are approximate and can vary based on credit score, lender, economic conditions, and other factors.
Amortization Schedule (Sample)
| Payment Period | Payment Amount | Principal | Interest | Remaining Balance |
|---|---|---|---|---|
| Month 1 | $536.82 | $120.15 | $416.67 | $99879.85 |
| Month 2 | $536.82 | $120.65 | $416.17 | $99759.19 |
| Month 3 | $536.82 | $121.16 | $415.66 | $99638.04 |
| Month 4 | $536.82 | $121.66 | $415.16 | $99516.37 |
| Month 5 | $536.82 | $122.17 | $414.65 | $99394.21 |
Note: This is a sample of the first few payments. In a typical amortization schedule, you would see how each payment is divided between principal and interest for the entire loan term.