How to Calculate Monthly Loan Payments
Last updated: June 2026
The formula behind every loan
A fixed-rate loan's monthly payment comes from the amortization formula:
Payment = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]
where P is the amount borrowed, r is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments. The same equation powers mortgages, auto loans, and personal loans — only the inputs differ.
A worked example
Borrow $15,000 at 8% for 4 years:
- Monthly rate r = 0.08 ÷ 12 ≈ 0.006667; n = 48.
- (1 + r)ⁿ = 1.006667⁴⁸ ≈ 1.3757.
- Payment = 15,000 × 0.006667 × 1.3757 ÷ (1.3757 − 1) ≈ $366/month.
- Total paid ≈ $17,580, so interest is about $2,580.
Why early payments are mostly interest
Interest is charged on the outstanding balance, which is largest at the start. So in the first months most of your payment covers interest and only a little reduces principal. As the balance falls, the split flips. This is why prepaying early in a loan saves the most interest.
What changes the payment
- A higher rate raises the payment and total interest sharply.
- A longer term lowers the monthly payment but increases total interest.
- A larger down payment reduces P, lowering both.
Compare loans on total cost, not just the monthly payment — a smaller payment from a longer term can hide thousands in extra interest.
Use the calculator
Put these ideas to work with the Payment Calculator. You can also browse all MoneyCalcKit calculators or read the calculator methodology for formulas and assumptions.
Frequently asked questions
What formula do loan calculators use?
The amortization formula: Payment = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1], where P is principal, r is the monthly rate, and n is the number of payments.
Why is most of my early payment interest?
Interest is charged on the balance, which is highest at the start. As the balance falls, more of each payment goes to principal.
Does a longer term save money?
It lowers the monthly payment but raises total interest. Compare loans by total cost, not just the payment.