How to Calculate Loan Payments: Amortization and Real Examples
Understand how monthly payments and amortization work, with worked examples for car loans and mortgages — plus how to compare loans before you sign.
A $25,000 car loan at 6.5% over five years costs you about $4,350 in interest. Stretch that same loan to seven years and the monthly payment drops by about $120, but you hand the lender roughly $1,800 more. That trade-off is the whole game with borrowing, and it’s what the Loan Calculator lays out before you sign anything.
What the calculator tells you
Three numbers, the moment you finish typing:
- The monthly payment you’ll owe
- The total interest over the life of the loan
- The total you’ll repay (principal plus interest)
Below that sits the amortization schedule: one row per payment, showing how much chips away at the balance and how much is just interest. Flip it to the yearly view if 360 mortgage rows feel like too much.
How monthly payments are worked out
Every fixed-rate loan with equal payments runs on the same formula:
M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
P is the amount borrowed, r is the monthly rate (your annual rate divided by 12), and n is the number of payments. You never touch it — type the three inputs and the math runs — but it helps to know nothing magical is going on behind the result. A 0% promotional loan is even simpler: the balance split evenly across the months.
Why your first payments feel like they go nowhere
Here’s the part that catches people off guard. Interest is charged on whatever you still owe, and at the start you owe the most. On a 30-year mortgage at 6%, the first payment is about 83% interest and just 17% principal. The balance barely budges for years.
It flips slowly. By the final stretch almost every dollar goes to principal. The yearly view makes the crossover obvious: watch the interest column shrink while the principal column grows.
This is also why throwing a little extra at the loan early matters far more than doing it later. An extra $100 in year one wipes out the future interest on that $100 for the entire remaining term. The same $100 in the last year saves you almost nothing.
Comparing loans before you commit
The fastest way to use the tool is to run the same loan twice and put the totals side by side.
- Shorter vs longer term: a 15-year mortgage hurts more each month than a 30-year, but the lifetime interest savings are usually huge.
- Rate shopping: drop the rate by half a percent and watch the total interest fall. That number is your negotiating target.
- Down payment: lower the principal and see how much breathing room it buys you in the monthly figure.
I’d run at least three scenarios before talking to any lender. Each one takes about thirty seconds, and you walk in knowing what “a good deal” looks like for your actual numbers instead of guessing.
A note on APR
The rate field takes whatever you give it. Enter the plain interest rate and you’ll see the cost of the borrowing itself. Enter the APR, which rolls in certain fees, and you’ll get a truer total cost. The two are usually close but rarely identical, so use the APR when you have it.
Your numbers stay yours
Nothing you enter leaves the page. The calculator is plain JavaScript running in your browser, so your loan amount, rate, and term are never uploaded or stored. Open the page, switch off your Wi-Fi, and it keeps working.
Run your own figures through the Loan Calculator and read the full schedule before you sign.