Calculate monthly payments for any loan, mortgage, or financing arrangement.
Updated for 2025 | Loan payment estimation with multiple scenarios
Principal & Interest
$20,000.00
$0.00
$0.00
60 months
The monthly payment for a loan is calculated using the formula:
PMT = P[r(1+r)n] / [(1+r)n - 1]
Where:
This formula ensures that the loan is fully paid off by the end of the loan term, with interest calculated on the remaining balance each month.
Even a small difference in interest rate can significantly impact your monthly payment and total interest paid over the life of a loan. This is due to compound interest — interest charged on both principal and previously accumulated interest.
For example, on a $300,000 30-year mortgage:
That 1% difference results in $178 more per month and $64,158 more interest over the loan term. For longer-term loans like mortgages, these effects are even more pronounced.
This depends on your financial situation and goals:
Shorter loan term advantages:
Longer loan term advantages:
Consider your budget, other financial goals, job stability, and risk tolerance when making this decision. You can always make extra payments on a longer-term loan to achieve some benefits of a shorter term.
Making extra payments on your loan can significantly reduce the total interest paid and shorten the loan term. When you make extra payments:
For example, on a $250,000 30-year mortgage at 4.5% interest:
Note: Check if your loan has any prepayment penalties before making extra payments.
Different loan types have unique characteristics that affect payment calculations:
For mortgages, monthly payments may also include escrow amounts for property taxes and insurance, which aren't calculated by this payment calculator. These additional costs can significantly increase your total monthly payment.
This common dilemma depends on several factors:
A balanced approach often works best: maintain emergency savings, capture employer 401(k) matches, pay off high-interest debt, then split additional funds between investing and accelerating lower-interest debt payoff.
Understanding how payments work in real-world scenarios can help you make better financial decisions. Here are some practical examples:
Sarah is buying a new car with these details:
Monthly payment: $559.27
Total interest paid: $3,556.37
Financial impact: By putting down $5,000 and choosing a 5-year term instead of 6 or 7 years, Sarah saves over $2,000 in interest and avoids being "underwater" on her loan (owing more than the car is worth) due to depreciation.
The Rodriguez family is comparing mortgage options for their $400,000 home purchase:
| 30-Year Fixed | 15-Year Fixed | |
|---|---|---|
| Loan amount | $320,000 | $320,000 |
| Interest rate | 5.75% | 5.00% |
| Monthly payment | $1,866.76 | $2,532.25 |
| Total interest | $352,031 | $135,805 |
Financial impact: The 15-year option costs $665 more per month but saves $216,226 in interest and builds equity much faster. The family decided on the 15-year mortgage because their income could support the higher payment.
Michael has $60,000 in student loans at 6.8% interest with 20 years remaining:
After refinancing to 4.5% for 15 years:
Financial impact: By refinancing, Michael's payment increased by only $1.77 per month, but he'll save $27,174 in interest and be debt-free 5 years sooner. This highlights how a lower interest rate can dramatically reduce the total cost of borrowing even with a shorter term.
Small business owner Javier needs $75,000 for new equipment and is comparing options:
| Bank Loan | Equipment Lease | |
|---|---|---|
| Term | 5 years | 5 years |
| Interest/Rate | 7.5% | Effective 9.2% |
| Monthly payment | $1,498.88 | $1,558.33 |
| Tax benefits | Interest deduction | Full payment deduction |
| Ownership | Yes | Option to purchase |
Financial impact: Despite the higher rate, Javier chose the lease for better cash flow through tax deductions and to preserve his bank credit line for other business needs. This demonstrates how payment decisions involve more factors than just the interest rate.
Most loans follow an amortization schedule, where each payment includes both principal and interest, but in different proportions over time:
For example, on a 30-year $300,000 mortgage at 5%:
This explains why you build equity slowly during the early years of a loan but much faster later on. Extra payments during the early years are especially effective at reducing the total interest paid.
When shopping for loans, you'll see both interest rates and Annual Percentage Rates (APR):
For example, a mortgage might advertise a 4.5% interest rate but have a 4.75% APR because it includes origination fees, discount points, mortgage insurance, and other closing costs.
The APR provides a more comprehensive view of the loan's cost, making it easier to compare different loan offers even when they have different fee structures. Always compare APRs, not just interest rates, when shopping for loans.
Your credit score significantly impacts the interest rate you'll be offered, which directly affects your monthly payment. Consider a $25,000, 5-year auto loan:
| Credit Score | Approximate Rate | Monthly Payment | Total Interest |
|---|---|---|---|
| 760-850 (Excellent) | 4.5% | $466 | $2,960 |
| 700-759 (Good) | 6.5% | $489 | $4,340 |
| 660-699 (Fair) | 9.5% | $525 | $6,500 |
| Below 660 (Poor) | 15.0% | $594 | $10,640 |
Improving your credit score before taking out a loan can save you thousands of dollars over the loan term. Key factors that impact your credit score include payment history, amounts owed, length of credit history, new credit, and credit mix.
If you need to lower your monthly payments, consider these approaches:
Remember that the lowest monthly payment isn't always the best deal if it means paying significantly more interest over the life of the loan.
Explore our other financial calculators to help with your planning needs:
Calculate mortgage payments with taxes and insurance
Estimate car loan payments with trade-in value
Compare different loan scenarios
Project investment growth over time
Create a debt elimination strategy
View detailed loan payment schedule