Loan calculator

How loan payments work

Most personal loans, auto loans and mortgages are amortising: you pay the same amount every month, and each payment covers that month's interest first, with the rest reducing the balance. Early on most of the payment is interest; as the balance shrinks, more goes to principal. The table and chart show that shift year by year.

Worked example

Borrow $25,000 at 6% a year for 5 years. The monthly rate is 0.5% and there are 60 payments, so the payment is $483.32. Over the loan you pay $28,999.23, of which $3,999.23 is interest.

Add $100 a month and the loan is paid off in 49 months instead of 60, saving $792.93 of interest.

Comparing offers

Two loans with the same rate but different terms have very different totals: stretching the same $25,000 to 7 years lowers the payment but raises total interest. Compare the total paid, not just the monthly figure, and ask for the annual percentage rate including fees.

The monthly payment comes from the annuity formula: payment = amount × r ÷ (1 − (1 + r)^−n), where r is the annual rate divided by 12 and n is the number of months. The page then builds the schedule month by month: interest is the balance times r, rounded to the cent like a lender would; the rest of the payment reduces the balance; any extra payment goes straight to principal. The last payment absorbs the rounding so the balance ends at zero. The table groups months into years. Fees and insurance are not included.