How the monthly payment is calculated
Most car loans, personal loans and mortgages use this standard formula:
Payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
where P is the loan amount, r is the monthly interest rate (APR ÷ 12) and n is the number of monthly payments.
Ways to pay less interest
- Shorter term: higher monthly payments, but much less interest in total.
- Lower rate: compare offers. Even 1% lower can save hundreds or thousands.
- Extra payments: paying a little extra each month cuts the balance faster (check that your loan has no prepayment fee).
- Bigger down payment: borrow less, pay less interest.
FAQ
How do I calculate a monthly loan payment?
Use the formula Payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), with r the monthly rate and n the number of payments. Or just enter your numbers above.
What is APR?
APR (annual percentage rate) is the yearly cost of borrowing, shown as a percent. Monthly interest is roughly APR ÷ 12.
Is it better to choose a longer loan?
A longer loan lowers your monthly payment but usually costs more interest in total. A shorter loan costs less overall if you can afford the payment.