How To Calculate Loan Payments (2023)

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When taking out a loan, it’s essential to understand how much you’ll have to pay each month. This can help you better compare lenders and decide whether an interest-only or amortized loan is the best fit. While it’s possible to calculate loan payments on your own, numerous loan payment calculators are available for many of the most common types of loans.

Here’s what you need to know about calculating loan payments and where to find the best loan payment calculators.

How Loan Payments Work

Most loans require monthly payments over a set period—the loan term. These payments go toward the loan principal (the amount you initially borrowed) and the interest (the cost of borrowing the money). The amount of your monthly payment depends on the terms of your loan, including the interest rate, repayment term and amortization schedule.

The main factors that impact loan payments are:

  • Principal. The loan principal is the total amount you borrowed.
  • Interest rate. Interest is what lenders charge consumers to borrow money. Annual percentage rates (APRs) include annualized interest as well any fees or additional costs of borrowing, like origination fees. Interest rates are more competitive for borrowers with excellent credit because they pose less risk to lenders.
  • Fees. Depending on the lender, additional fees may include origination fees, late fees, insufficient funds fees and prepayment penalties.
  • Repayment term. A shorter loan term means higher monthly payments, but interest has less time to accrue. A longer loan term comes with lower monthly payments but more interest overall.

Extra Payments

Making extra payments on top of what you’re required to pay can help you repay your loan faster and save money in the long run. If you put these additional funds toward the loan’s principal balance, you will reduce the interest you owe over time.

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If you want to make extra payments on your loan, check with your lender first. It may be necessary to request that extra payments be applied to the principal. Some lenders also charge prepayment penalties that will increase the overall cost of your loan if you pay it off early, while others may limit the number of additional payments you can make each year.

Loan Payment Formula

Borrowers can use the loan payment formula to calculate the monthly payment of a loan. You’ll need to know the interest rate, loan amount and loan term. Keep in mind that this can be used for any type of loan, including personal loans, car loans, student loans and mortgages.

Once you have all the necessary information, you can plug it into the formula and calculate your monthly payment.

Interest-only Loans

An interest-only loan is a type of loan where you only make payments toward the interest for a certain period. The amount you owe in principal doesn’t change during this period, so your monthly payments are lower than they would be with a traditional, amortized loan.

To calculate interest-only loan payments, multiply the loan balance by the annual interest rate, and divide it by the number of payments in a year. For example, interest-only payments on a $50,000 loan with a 4% interest rate and a 10-year repayment term would be $166.67.

Interest-only loans can be helpful if you need to keep your payments low in the near term. However, they also have some risks. Because you’re not paying off your loan’s principal balance, you’ll pay more in interest overall. Additionally, if the value of your collateral decreases, you could end up owing more than it is worth.

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Amortizing Loans

An amortizing loan is a type of loan where the monthly payments are applied to both the principal balance and the interest. This means that each payment reduces the amount you owe in both areas.

Calculating payments based on an amortization schedule is more complex than interest-only loans. Payments for fully-amortized fixed-rate loans are set using amortization tables and provided by the lender at the beginning of a loan. If you want to know what your expected payment will be, use one of the calculators provided below.

Consider the same $50,000 loan from above. In this case, the monthly payment is $506.23 for the entire repayment period—about three times the interest-only payment. Here’s the amortization table for the first year of this loan:

Starting loan balanceInterest paymentPrincipal paymentNew loan balance
Month 1$50,000.00$166.67$339.56$49,660.44
Month 2$49,660.44$165.53$340.70$49,319.74
Month 3$49,319.74$164.40$341.83$48,977.91
Month 4$48,977.91$163.26$342.97$48,634.94
Month 5$48,634.94$162.12$344.11$48,290.83
Month 6$48,290.83$160.97$345.26$47,945.57
Month 7$47,945.57$159.82$346.41$47,599.16
Month 8$47,599.16$158.66$347.57$47,251.59
Month 9$47,251.59$157.51$348.72$46,902.87
Month 10$46,902.87$156.34$349.89$46,552.98
Month 11$46,553.98$155.18$351.05$46,201.93
Month 12$46,201.93$154.01$352.22$45,849.71

Calculate Loan Payments Using Calculators

The easiest way to calculate loan payments is with an online loan calculator. These tools let prospective borrowers plug in the necessary information to get an estimated monthly payment.

Personal Loan Calculator

Personal loan calculators are a way to estimate the monthly payment on a personal loan. Not only does this help you calculate what you can afford to borrow, but it also makes it easier to compare lenders to find the lowest monthly payment.

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To use the Forbes Advisor personal loan calculator, input the loan amount, annual interest rate and repayment term in months or years. After you input this information, the calculator will estimate your monthly payment, how much you’ll pay in interest and the total amount paid over the loan term. Remember that this is just an estimate, so your actual payment may differ.

Student Loan Calculator

For many, student loans are the only way to pay for college—but they can have far-reaching impacts on your finances for many years to come. The Forbes Advisor student loan calculator can help you understand the implications of borrowing and show you how additional payments impact your budget and payment horizon.

Enter your loan amount, interest rate, loan term and additional monthly payment amount into the calculator. Based on this information, you’ll see your estimated monthly payment and estimated payoff month. You’ll also see the total interest paid over the course of repayment and the total amount paid.

Mortgage Calculator

Using our mortgage calculator can take some of the mystery out of financing a house—especially for first-time homebuyers. To use it, enter the home price, down payment (as a dollar amount or percentage), interest rate and loan term in years.

A mortgage calculator can help you determine how much you can afford to spend on a home. It also makes it easier to see how different down payment amounts affect monthly payments. The best mortgage calculators also create a complete amortization schedule so you can see your possible loan payments over time.

HELOC Calculator

Our home equity line of credit (HELOC) calculator lets you see how much you’re likely to qualify for through a HELOC. Calculations are based on your credit score, current home value and outstanding mortgage balance.

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Once you enter the information, the calculator will tell you how much you may be able to borrow and your current loan-to-value (LTV) ratio. Lenders generally allow a maximum LTV ratio of 80%, so HELOC calculators can help you better understand your approval odds.

Home Equity Loan Calculator

Home equity loan calculators can help you evaluate your approval odds and show you how much you may be able to borrow. To use the Forbes Advisor home equity loan calculator, enter your current home value, outstanding mortgage balance and credit score.

As with the HELOC calculator, you’ll be able to see your current LTV ratio and the amount you may be able to borrow against your home equity.

Auto Loan Calculator

Our auto loan calculator can help you determine how much you can afford to pay for a vehicle—and offer insight into how much you’ll pay in interest over the life of your loan. Enter your credit score, the price of the car, the interest rate and the loan term in months or years. Where applicable, also enter the trade-in value of your current vehicle or the down payment you plan to make.

The calculator will show you how much you’ll pay in interest each month and the total interest paid over time. You’ll also see the total amount you’ll pay over the life of the loan, including both loan principal and interest. Depending on the auto loan calculator you use, it may also generate annual and monthly amortization schedules.

If you’re not comfortable using a calculator, talk to your lender. It can estimate your monthly payments based on relevant loan details.

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FAQs

How do you calculate monthly loan payments by hand? ›

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1].
  1. M = Total monthly payment.
  2. P = The total amount of your loan.
  3. I = Your interest rate, as a monthly percentage.
  4. N = The total amount of months in your timeline for paying off your mortgage.
10 Nov 2022

How do I calculate installment per month? ›

Equated Monthly Installment (EMI) Formula

The EMI flat-rate formula is calculated by adding together the principal loan amount and the interest on the principal and dividing the result by the number of periods multiplied by the number of months.

What is payment formula? ›

The formula:

A = P (r (1+r)^n) / ( (1+r)^n -1 ) Where: A = Payment amount per period. P = Initial principal or loan amount (in this example, R150 000) r = Interest rate per period (in our example, that's 7.5% divided by 12 months)

How do I calculate loan payments in Excel? ›

=PMT(17%/12,2*12,5400)

For example, in this formula the 17% annual interest rate is divided by 12, the number of months in a year. The NPER argument of 2*12 is the total number of payment periods for the loan. The PV or present value argument is 5400.

How do you calculate monthly loan payments and interest? ›

Divide your interest rate by the number of payments you'll make that year. If you have a 6 percent interest rate and you make monthly payments, you would divide 0.06 by 12 to get 0.005. Multiply that number by your remaining loan balance to find out how much you'll pay in interest that month.

How do you calculate total payments? ›

To find the total amount paid at the end of the number of years you pay back your loan for, you will have to multiply the principal amount borrowed with 1 plus the interest rate. Then, raise that sum to the power of the number of years. The equation looks like this: F = P(1 + i)^N.

How do you calculate loan payments on sheets? ›

The PMT function in Google Sheets can be used to calculate the monthly payment for a loan. To use the function, you will need to know the loan amount, the interest rate, and the number of months the loan will be paid over. The function will then calculate the monthly payment for you.

What is total loan payment? ›

Total loan amount means the principal of a loan minus those points and fees that are included in the principal amount of the loan. For open-end loans, the total loan amount must be calculated using the total line of credit allowed under the residential mortgage loan at closing.

What is the payment on a 25000 loan? ›

The monthly payment on a $25,000 loan ranges from $342 to $2,512, depending on the APR and how long the loan lasts. For example, if you take out a $25,000 loan for one year with an APR of 36%, your monthly payment will be $2,512.

How do you calculate loan repayments in maths? ›

This formula is a fairly straight-forward one for calculating interest:
  1. Loan Payment (P) = Loan Balance (B) x (Annual Interest Rate/12)
  2. Loan Payment (P) = Total Loan Amount (A) / Discount Factor (D)
  3. Total Repayment = P * (r/n) * (1 + r/n)t*n / [(1 + r/n)t*n – 1]
  4. Total Repayment = Principal Repayment + Interest Payment.

How does the PMT formula work? ›

The Excel PMT function is a financial function that returns the periodic payment for a loan. You can use the PMT function to figure out payments for a loan, given the loan amount, number of periods, and interest rate.

What is the loan payment formula used for? ›

Borrowers can use the loan payment formula to calculate the monthly payment of a loan. You'll need to know the interest rate, loan amount and loan term. Keep in mind that this can be used for any type of loan, including personal loans, car loans, student loans and mortgages.

What are the 3 methods of payment? ›

Payment Options
  • Cash.
  • Checks.
  • Debit cards.
  • Credit cards.
  • Mobile payments.
  • Electronic bank transfers.

What is the most commonly used method of payment? ›

Although cash still comes out as one of the top payment methods, the report also notes that more than half of payments (57%) were made with payment cards, such as debit, credit, and prepaid.

What is an example of a payment method? ›

The number of ways in which merchants can collect payments from their customers, for example, credit cards, digital wallets, direct debit, offline payment, etc. In a store, perhaps you use cash, credit cards, or mobile payment options like Apple Pay.

What is PMT in cost of debt? ›

Coupon Payment: The interest payments paid to the bondholders (PMT)

What is total of payments on a loan? ›

This number tells you the total amount of money you will have paid over the life of your mortgage. The “total of payments” is found on page 5 of the Closing Disclosure form in the “Loan Calculations” section. This total includes principal, interest, mortgage insurance (if applicable), and loan costs.

What is monthly payment in loan? ›

The monthly payment is the amount paid per month to pay off the loan in the time period of the loan. When a loan is taken out it isn't only the principal amount, or the original amount loaned out, that needs to be repaid, but also the interest that accumulates.

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