Loan Payment Calculator
Estimate monthly loan payment using annuity formula.
Loan Calculator Guide
Types of loans: There are consumer loans (for goods and services), mortgage loans (for real estate), and business investment loans. Each type has different terms, repayment periods, and security requirements.
APR (Annual Percentage Rate): This is the key comparison metric that includes not only the nominal interest rate but also all additional costs: commissions, insurance, application fees. Lower APR means cheaper credit. Note: APR can be misleading for very short-term loans where one-time fees have a big impact on the annual rate.
Equal vs decreasing installments: With equal (annuity) payments, you pay the same amount monthly throughout the loan term. Initially, most of the payment is interest, and principal grows slowly. With decreasing installments, the payment amount decreases over time - you pay more initially but the total interest cost is lower. Decreasing installments are better for higher income and planning early repayment.
What to watch for: Always check the total cost of credit, not just the monthly payment. Ensure the bank offers early repayment without penalties. Pay attention to variable interest rates (risky when rates rise) vs fixed (more expensive but safer). Compare offers from multiple banks and watch for ancillary costs.
What a loan actually costs
The monthly instalment is the number lenders advertise and the number that hides the most. What decides whether a loan is cheap is the total interest, and that is driven far more by the term than by the headline rate.
How it works
- Applies the standard annuity formula to give a fixed monthly payment covering both interest and capital.
- Splits each payment into interest and principal, which shifts steadily across the term.
- Totals the interest, so the cost of the loan is visible rather than spread across sixty invisible instalments.
M = P × r / (1 − (1 + r)^−n) P = amount borrowed r = monthly rate = annual rate ÷ 12 n = number of months total interest = (M × n) − P
Worked example
Borrowing 20,000 at 9% annual, compared over 3 years and over 7 years.
- r = 0.09 ÷ 12 = 0.0075
- 3 years (n=36): M = 20000 × 0.0075 / (1 − 1.0075^−36) = 636
- total paid = 636 × 36 = 22,896 → interest 2,896
- 7 years (n=84): M = 20000 × 0.0075 / (1 − 1.0075^−84) = 322
- total paid = 322 × 84 ≈ 27,030 → interest 7,030
Halving the monthly payment from 636 to 322 more than doubles the interest, from 2,896 to 7,030. The longer loan feels affordable each month and costs 4,134 more.
Reading the result
- Early payments are mostly interest. In the 7-year example above, the first payment is 150 interest and 172 capital; by the final year it is almost entirely capital. This is why overpaying early saves disproportionately more than overpaying late.
- Compare the APR, not the nominal rate. APR folds in arrangement fees and compulsory insurance, which is where lenders hide cost when the advertised rate has to look competitive.
- This assumes a fixed rate and equal instalments. A variable rate changes the payment mid-term, and some products front-load fees so early settlement saves less than the arithmetic suggests.
- Check whether early repayment carries a penalty before planning to overpay. In the EU, consumer credit permits early settlement, but the lender may claim limited compensation.
Common questions
- Should I take the longer term for the lower payment?
- Only if the shorter term's payment genuinely does not fit your budget. A longer term is not cheaper — it is the same debt spread thinner, and you pay for the privilege. If cash flow is the constraint, take the longer term but overpay whenever you can.
- How much does overpaying actually save?
- More than most people expect, because every extra payment goes entirely to capital and removes all the future interest that capital would have generated. On the 7-year example, an extra 50 a month clears the loan roughly 16 months early and saves over 1,400 in interest.