Loan Calculator
Loan & Amortization Calculator
Report Bug Taking out a loan is a commitment to your future income. Whether you are buying a dream home, a new car, or consolidating debt, the most important number isn't the total loan amount—it's the monthly payment and the total interest you will pay over time. The Loan Calculator demystifies the banking math. It breaks down your debt into manageable monthly installments (EMI) and reveals the hidden cost of borrowing.
Use this tool to simulate different interest rates and terms to find a payment plan that fits your budget without compromising your financial health.
🏦 The Amortization Formula
Banks use a specific mathematical formula to ensure equal monthly payments while the proportion of interest decreases over time. This is known as loan amortization.
Key Variables:
- M: Total Monthly Payment.
- P: Principal Loan Amount.
- i: Monthly Interest Rate (Annual Rate divided by 12).
- n: Number of payments (Loan term in years × 12).
🚗 Example Scenario: The Cost of a Car Loan
Let's assume you are financing a vehicle for $25,000 over a period of 5 Years (60 Months) at an interest rate of 6%.
| Monthly Payment | Total Interest | Total Repayment |
|---|---|---|
| $483.32 | $3,999.20 | $28,999.20 |
| Financial Insight: Although you borrowed $25,000, you are paying back nearly $29,000. The interest represents roughly 16% of the loan value. This is the "Cost of Borrowing." | ||
Strategic Tip: If you increase your monthly payment by just $50, you could pay off the loan months earlier and save hundreds of dollars in interest.
Why Calculate Before You Apply?
Using a calculator empowers you against predatory lending:
- Budgeting: Ensure the monthly payment fits your "50/30/20" budget rule (Needs/Wants/Savings).
- Term Comparison: See the difference between a 15-year and a 30-year mortgage. Long terms have lower monthly payments but significantly higher total interest.
- Rate Sensitivity: Understand how a 1% difference in APR impacts your wallet over the life of the loan.
Frequently Asked Questions (FAQs)
What is the difference between Interest Rate and APR?
This is crucial, especially in the US and UK markets. The Interest Rate is the cost of borrowing the principal. The APR (Annual Percentage Rate) includes the interest rate plus other costs like broker fees, closing costs, and points. The APR gives you a truer picture of the loan's total cost.
What is "Amortization"?
Amortization is the process of spreading out a loan into a series of fixed payments. In the beginning, a large portion of your payment goes toward Interest. As time passes, more of your payment goes toward reducing the Principal balance.
Can I pay off my loan early?
Usually, yes. Making extra payments reduces the principal faster, which lowers the total interest you pay. However, some lenders charge a "Prepayment Penalty." Always check your loan agreement terms before making large lump-sum payments.
Fixed vs. Variable Rate: Which is better?
A Fixed Rate stays the same for the entire loan term, providing stability for your budget (ideal for mortgages). A Variable (ARM) Rate might start lower but can increase if market rates rise, which adds risk to your monthly expenses.
How does my credit score affect the calculation?
The calculator assumes a specific interest rate. However, in reality, your credit score determines the rate you are offered. A higher score (750+) typically unlocks lower interest rates, significantly reducing your monthly payment and total cost compared to a lower score.
