Loan Calculator
This bidirectional loan calculator solves for ANY variable: calculate monthly payment from loan details, find max loan amount you can afford from your budget, or determine how long to pay off a loan. Formula: Payment = P × [r(1+r)^n] / [(1+r)^n - 1]. Includes amortization schedule.
Bidirectional loan calculator - solve for monthly payment, loan amount, OR loan term. Calculate payments, find how much you can afford, or determine payoff time. View amortization schedule.
What do you want to calculate?
Calculate your monthly payment based on loan amount, rate, and term
Loan Amount
Annual Interest Rate
Loan Term
💡 Quick Loan Tips
- A lower interest rate significantly reduces total cost
- Shorter terms mean higher payments but less total interest
- Making extra payments can save thousands in interest
- Compare offers from multiple lenders to get the best rate
Understanding Loans: A Complete Guide
A loan is a financial arrangement where a lender provides money to a borrower, who agrees to repay the amount plus interest over a specified period. Understanding how loans work is essential for making informed financial decisions, whether you're buying a home, financing a car, or consolidating debt.
The Three Core Components of Every Loan
Principal
The original amount borrowed. For a $20,000 car loan, the principal is $20,000. This is the base amount you must repay, excluding interest.
Interest
The cost of borrowing, expressed as a percentage (APR). Interest is how lenders make money. A lower rate saves you thousands over the loan's life.
Term
The length of time to repay the loan, typically expressed in months or years. Longer terms mean lower payments but more total interest paid.
Simple Interest vs. Compound Interest
Simple interest is calculated only on the original principal amount. Most personal loans and auto loans use simple interest. The formula is straightforward: Interest = Principal × Rate × Time. If you borrow $10,000 at 5% simple interest for 3 years, you'll pay $1,500 in total interest ($10,000 × 0.05 × 3).
Compound interest is calculated on both the principal and accumulated interest. Credit cards and some savings accounts use compound interest. While powerful for growing investments, compound interest on debt can be costly—interest accrues on interest, causing your balance to grow faster. Most installment loans (mortgages, auto loans, personal loans) use simple interest calculated on the remaining balance, which decreases as you make payments.
Types of Loans
Different loans serve different purposes, each with unique characteristics:
- Personal Loans: Unsecured loans for any purpose—debt consolidation, home improvements, or major purchases. Rates typically range from 8% to 20% based on credit score. No collateral required, but higher rates than secured loans.
- Auto Loans: Secured by the vehicle you're purchasing. New car rates (5-8%) are typically lower than used car rates (7-12%). The car serves as collateral, meaning the lender can repossess it if you default.
- Mortgages: Long-term loans for purchasing property, typically 15-30 years. Secured by the home itself. These have the lowest rates (usually 6-7.5% in 2024) due to the collateral and long repayment period.
- Student Loans: Specifically for education expenses. Federal student loans have fixed rates set by Congress, while private loans vary by lender and creditworthiness. Federal loans offer income-driven repayment and forgiveness options.
Fixed vs. Variable Interest Rates
Fixed-rate loans maintain the same interest rate throughout the entire loan term. Your monthly payment stays constant, making budgeting predictable. Most mortgages and personal loans offer fixed rates. This is ideal when rates are low or you prefer payment stability.
Variable-rate loans (also called adjustable-rate) have interest rates that can change over time based on market conditions. Often start with lower "teaser" rates that may increase significantly later. Common in HELOCs, some student loans, and adjustable-rate mortgages (ARMs). Best when you plan to pay off the loan quickly or expect rates to decrease.
📐 The Loan Payment Formula (Amortization)
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ - 1]
M = Monthly payment amount
P = Principal (loan amount)
r = Monthly interest rate (annual rate ÷ 12)
n = Total number of payments (term in months)
Example Calculation:
For a $20,000 loan at 6% for 5 years:
- P = $20,000
- r = 0.06 ÷ 12 = 0.005
- n = 5 × 12 = 60
- M = $386.66/month
This formula calculates the fixed monthly payment needed to fully pay off a loan with equal payments over its term. Each payment includes both principal and interest, with early payments going mostly toward interest and later payments going mostly toward principal.
📊 Worked Examples
Example 1: $20,000 Car Loan at 6% for 5 Years
Monthly Payment
$386.66
Total Payments
$23,199.36
Total Interest
$3,199.36
Interest % of Total
13.8%
Example 2: $10,000 Personal Loan at 12% for 3 Years
Monthly Payment
$332.14
Total Payments
$11,957.15
Total Interest
$1,957.15
Interest % of Total
16.4%
💰 The Power of Extra Payments
Using Example 1 ($20,000 car loan at 6% for 5 years), here's what happens if you pay extra:
Standard Payment
$386.66/mo
60 months
$3,199 interest
+$50 Extra/Month
$436.66/mo
52 months
$2,738 interest
Save $461!
+$100 Extra/Month
$486.66/mo
46 months
$2,350 interest
Save $849!
🎯 How to Get Better Interest Rates
Improve Your Credit Score
A score above 740 typically qualifies you for the best rates. Pay bills on time, reduce credit utilization, and check for errors on your credit report.
Shop Multiple Lenders
Rates vary significantly between lenders. Compare banks, credit unions, and online lenders. Multiple credit checks within 14-45 days count as one inquiry.
Make a Larger Down Payment
For mortgages and auto loans, larger down payments often mean lower rates. 20% down on a mortgage also eliminates PMI.
Choose a Shorter Term
Shorter loan terms typically have lower interest rates. A 15-year mortgage often has rates 0.5-0.75% lower than a 30-year.
Consider Refinancing
If rates drop or your credit improves, refinancing can lower your rate. Typically worth it if you can reduce the rate by 0.5-1% or more.
Use Autopay Discounts
Many lenders offer 0.25-0.5% rate reductions for enrolling in automatic payments. It's free money for setting up a direct debit.
⚠️ APR vs. Interest Rate: Know the Difference
Interest Rate
The base cost of borrowing the principal. This is the "sticker price" of your loan.
Example: 6.0%
APR (Annual Percentage Rate)
The total cost including interest plus fees like origination fees, closing costs, and mortgage insurance.
Example: 6.3%
Why it matters: Two loans with the same interest rate can have different APRs. A loan at 6.0% with $3,000 in fees may cost more than a loan at 6.25% with no fees. Always compare APR for the true cost, but also consider if you'll keep the loan long enough to recoup upfront fees through a lower rate.
📋 Typical Loan Rates by Type (2024 Averages)
Actual rates depend on credit score, lender, and market conditions
| Loan Type | Average Rate | Typical Term | Typical Amount |
|---|---|---|---|
| Mortgage (30-year fixed) | 6.5% - 7.5% | 15-30 years | $200K - $500K+ |
| Mortgage (15-year fixed) | 5.75% - 6.75% | 15 years | $200K - $500K+ |
| Auto Loan (new car) | 5% - 8% | 3-7 years | $20K - $60K |
| Auto Loan (used car) | 7% - 12% | 3-6 years | $10K - $40K |
| Personal Loan | 8% - 20% | 2-7 years | $5K - $50K |
| Student Loan (Federal) | 5% - 8% | 10-25 years | $10K - $100K+ |
| Student Loan (Private) | 4% - 14% | 5-20 years | $10K - $100K+ |
| Home Equity Loan | 8% - 10% | 5-30 years | $25K - $200K |
🔄 When Should You Refinance?
Refinancing replaces your existing loan with a new one, ideally at better terms. Consider refinancing when:
You can lower your rate by at least 0.5-1%
Your credit score has significantly improved
You want to switch from variable to fixed rate
You'll stay in the home/loan long enough to recoup closing costs
Break-Even Calculation
If refinancing costs $3,000 and saves you $150/month, your break-even point is 20 months ($3,000 ÷ $150). Only refinance if you'll keep the loan longer than the break-even period.
How to Use
- Enter your value in the input field
- Click the Calculate/Convert button
- Copy the result to your clipboard
Frequently Asked Questions
- How is monthly loan payment calculated?
- Monthly loan payment is calculated using the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n-1], where M is the monthly payment, P is the principal (loan amount), r is the monthly interest rate (annual rate divided by 12), and n is the total number of payments. This formula ensures each payment covers both principal and interest, with the loan fully paid off at the end of the term.
- What is the difference between APR and interest rate?
- The interest rate is the base cost of borrowing the principal amount—the "sticker price" of your loan. APR (Annual Percentage Rate) includes the interest rate plus other fees and costs like origination fees, closing costs, discount points, and mortgage insurance. APR gives a more complete picture of the total cost of the loan and is typically 0.1-0.5% higher than the base interest rate. When comparing loans, always compare APR to APR for the true cost.
- What affects my interest rate?
- Several factors determine your interest rate: 1) Credit score (higher scores = lower rates, with 740+ getting the best rates), 2) Debt-to-income ratio (lower is better), 3) Loan amount and term, 4) Down payment or equity (larger down payments often mean lower rates), 5) Loan type (secured loans like mortgages have lower rates than unsecured personal loans), 6) Current economic conditions and Federal Reserve policy, and 7) Lender competition in your area.
- How does loan term affect total interest paid?
- A longer loan term means lower monthly payments but significantly more total interest paid over the life of the loan. For example, a $200,000 mortgage at 6% for 30 years costs $231,676 in interest, while the same loan for 15 years costs only $103,788 in interest—a savings of $127,888. However, the 15-year loan requires payments of $1,688/month versus $1,199/month for the 30-year term.
- What is amortization?
- Amortization is the process of spreading loan payments over time with a fixed payment schedule. In an amortized loan, early payments go mostly toward interest (because the balance is highest), while later payments go mostly toward principal. For example, on a 30-year mortgage, you might pay 80% interest in year 1 but only 10% interest in year 30. An amortization schedule shows exactly how much of each payment goes to interest versus principal throughout the loan term.
- Should I pay extra on my loan principal?
- Paying extra on principal can save thousands in interest and shorten your loan term significantly. For example, paying an extra $100/month on a $200,000 30-year mortgage at 6% would save about $50,000 in interest and pay off the loan 5 years early. Extra payments go directly to principal reduction. However, consider whether you have higher-interest debt to pay first, an emergency fund, or employer 401(k) matching to maximize. Some loans have prepayment penalties—check your terms first.
- What is a good debt-to-income ratio for a loan?
- Lenders typically prefer a debt-to-income (DTI) ratio of 36% or less, with no more than 28% going toward housing costs (the "28/36 rule"). DTI is calculated by dividing your total monthly debt payments by your gross monthly income. For example, if you earn $6,000/month and have $1,800 in debt payments, your DTI is 30%. A lower DTI indicates better ability to manage monthly payments and may qualify you for better interest rates and larger loan amounts.
- What is the difference between simple and compound interest?
- Simple interest is calculated only on the original principal amount—most auto loans, personal loans, and mortgages use simple interest on the declining balance. Compound interest is calculated on both the principal and accumulated interest—credit cards and some savings accounts use this. For a $10,000 loan at 5% simple interest over 3 years, you pay $1,500 in interest. The same loan with monthly compound interest would cost about $1,614. For installment loans, simple interest on the declining balance is standard.
- When should I refinance my loan?
- Consider refinancing when: 1) You can lower your interest rate by at least 0.5-1%, 2) Your credit score has improved significantly since taking the original loan, 3) You want to switch from a variable to a fixed rate, 4) You want to change your loan term, or 5) You need to consolidate multiple debts. Calculate the break-even point by dividing refinancing costs by monthly savings—only refinance if you will keep the loan longer than this period.
- What are typical interest rates for different loan types?
- As of 2024, typical rates are: Mortgages (30-year fixed): 6.5-7.5%, Mortgages (15-year fixed): 5.75-6.75%, Auto loans (new): 5-8%, Auto loans (used): 7-12%, Personal loans: 8-20%, Federal student loans: 5-8%, Private student loans: 4-14%, Home equity loans: 8-10%. Your actual rate depends on credit score, down payment, loan term, and current market conditions. Always shop multiple lenders for the best rate.
Average Interest Rates (2026)
| Loan Type | Average Rate | Typical Term |
|---|---|---|
| 30-Year Mortgage | 6.5% - 7.5% | 360 months |
| 15-Year Mortgage | 5.8% - 6.8% | 180 months |
| Auto Loan (New) | 6.5% - 9% | 36-72 months |
| Auto Loan (Used) | 8% - 12% | 36-60 months |
| Personal Loan | 10% - 15% | 12-60 months |