Loan Calculator
Loan Calculator
Understanding loan terms helps you compare offers and choose the best financing option for your needs.
Key Terms
- Principal — The amount you borrow from a lender.
- Interest Rate — The cost of borrowing, expressed as an annual percentage rate (APR).
- Loan Term — The length of time you have to repay the loan, usually expressed in months.
- Monthly Payment — The fixed amount you pay each month, including principal and interest.
- Total Interest — The total cost of borrowing over the life of the loan.
- Amortization — The process of paying off a loan through regular payments over time.
Loan Payment Formula
M = P[r(1+r)^n]/[(1+r)^n-1]
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments
Types of Loans
- Fixed Rate — Interest rate remains constant throughout the loan term. Predictable payments.
- Interest Only — Pay only interest for a set period. Lower initial payments but principal remains unchanged.
- Adjustable Rate (ARM) — Interest rate changes periodically based on market conditions.
Tips for Borrowers
- Lower interest rates save you money over the life of the loan.
- Shorter loan terms mean higher monthly payments but less total interest paid.
- Making extra payments toward principal reduces total interest and shortens the loan term.
- Compare APRs, not just interest rates, to understand the true cost of borrowing.
- Check for prepayment penalties before making extra payments.