Loan Calculator

How Loan Interest Works

Loan interest is calculated on the remaining balance each month. With each payment, a portion goes to interest and the rest reduces your principal. This is why your first payments are mostly interest, and your last payments are mostly principal.

Fixed vs. Variable Rates

Fixed rates lock in your interest rate for the entire loan term. Your monthly payment never changes, making budgeting predictable.

Variable rates typically start lower but can adjust periodically. They carry the risk of increasing over time. Consider a fixed rate if you prefer stability.

Tips for Better Rates

• Maintain a credit score above 740 for the best offers
• Shop around and compare at least 3 lenders
• Consider shorter loan terms for lower rates
• Make a larger down payment when possible
• Set up autopay for potential rate discounts

Extra Payment Impact

Making extra payments, even small ones, can dramatically reduce your total interest. For example, adding just $50/month to a $25,000 loan at 6.5% for 5 years saves roughly $500 in interest and pays off the loan 5 months early.

When to Use This Calculator

• Before taking a loan: Compare 3-year vs 5-year terms to understand the payment vs total-cost trade-off.
• Evaluating extra payments: See how adding $100/month changes your payoff date and total interest.
• Auto or personal loan shopping: Plug in each offer to find the true cost of borrowing.

Real-World Examples

Example 1 — Auto loan: $35,000, 60 months at 6.9%. Monthly payment: $690. Total interest: $6,405. Adding $100/month extra saves $1,100 and pays off 9 months early.

Example 2 — Personal loan: $15,000, 36 months at 12%. Monthly: $498. Total interest: $2,943. Shortening to 24 months raises payment to $706 but saves $1,200 in interest.

Limitations & Assumptions

• Assumes fixed interest rate for the full term.
• Does not include origination fees, which can add 1-8% to the effective cost.
• Extra payment scenario assumes payments applied immediately to principal.
• Some lenders charge prepayment penalties — check your loan agreement.

Related Guides

• Which Financial Calculator to Use and When — pick the right tool for loans, mortgages, and more
• Understanding Compound Interest — how interest works for and against you

Data Sources

Amortization formula per standard actuarial method. Rate guidance from CFPB and Federal Reserve consumer credit surveys. Actual lender rates vary by credit score, income, and loan purpose.