How loan interest is calculated
Most loans use amortizing interest, which means your monthly payment stays the same but the split between principal and interest changes each month. Early payments go mostly to interest; later payments go mostly to principal.
M = P × [r(1+r)ⁿ] ÷ [(1+r)ⁿ − 1]
P = Principal loan amount
r = Monthly interest rate (annual rate ÷ 12)
n = Total number of payments (years × 12)
This is why paying even a small amount extra each month significantly reduces your total interest — it reduces the principal faster, which reduces the interest calculated each subsequent month.
Compare loans using the total cost, not only the payment
A low monthly payment can be useful for cash flow, but it may come from stretching repayment over more months. That can increase total interest paid. Use the calculator to compare the same borrowing amount over two or three terms, then look at both the payment and total interest.
When evaluating a real offer, check the annual percentage rate (APR), origination charges, late-payment rules, and whether there is a prepayment penalty. APR can be more useful than the headline interest rate because it may reflect certain required fees. Read the loan agreement before signing.
If you plan to pay extra, confirm with the lender that the extra amount reduces principal. This page provides a general estimate and does not replace a lender disclosure, credit advice, or legal advice. Exact payments can vary with fees, timing, and lender policies.
For a decision checklist, see How to Compare Loan Offers.