How the Loan Calculator works
This tool applies the standard amortizing-loan formula that lenders use to set a fixed monthly principal-and-interest payment. Enter the loan amount, annual interest rate, and term to see the payment, and add an extra monthly amount to see how much faster the loan clears and how much interest that saves.
The formula
For a loan amount P, a monthly interest rate r (the annual rate divided by 12), and n total monthly payments (years × 12), the fixed monthly payment is:
M = P × r / (1 − (1 + r)−n)
If the interest rate is 0%, the formula reduces to M = P / n. The calculator assumes a fixed rate, monthly compounding, and equal monthly payments — a standard fully amortizing loan. It does not model adjustable rates, balloon payments, or fees rolled into the balance.
Worked example
Take a $20,000 loan at 6.5% annual interest over 5 years. The monthly rate is 0.065 / 12 ≈ 0.005417 and n = 60 payments. The formula gives a payment of about $391 per month. Over 60 payments that totals roughly $23,470 — the original $20,000 of principal plus about $3,470 of interest.
How extra payments change the payoff
Every dollar of extra monthly payment goes straight to reducing the principal balance, which lowers the interest charged the following month. The calculator simulates the amortization schedule month by month with the extra amount included, so it reports the actual number of payments to a zero balance and the actual total interest paid — both typically lower than the scheduled term.
What moves the payment and total cost
- Interest rate: a higher rate raises both the monthly payment and the total interest paid over the life of the loan.
- Term length: a longer term lowers the monthly payment but increases total interest, because the balance accrues interest for more months.
- Extra payments: even a modest extra amount compounds over time — it shortens the payoff and reduces the interest charged in every remaining month.