How it’s calculated
An amortized loan is repaid with equal monthly payments. Each payment covers that month's interest on the remaining balance and the rest reduces the principal, so the interest share shrinks over time.
Example (OpenStax Contemporary Mathematics): a $28,500 car loan at 3.99% for 5 years has i = 0.0399 ÷ 12 = 0.003325 and n = 60, giving a payment of $524.74 (the textbook shows $524.75 after rounding intermediate steps) and about 524.74 × 60 − 28,500 = $2,985 of interest.
Lender figures can differ by a few cents because of rounding and day-count conventions; fees are not included.
Frequently asked questions
Does a longer term save money?
It lowers the monthly payment but increases total interest, because you borrow the money for longer.
What happens if I pay extra?
Extra payments go to principal, so later interest charges are smaller and the loan ends sooner. Check for prepayment penalties.
Is APR the same as the interest rate?
APR also folds in some fees, so it can be a little higher than the note rate. For comparing offers, use APR.
Embed this calculator
Add this free calculator to your own website. Copy the code below into your page’s HTML:
Sources
- Contemporary Mathematics, §6.8 The Basics of Loans — OpenStax
- Principles of Finance, §8.3 Loan Amortization — OpenStax
Formulas are taken from the free public references above. Results are provided “as is” for informational and educational purposes only. See our disclaimer.
Spotted a mistake or missing option? Report a problem · GitHub issue· Suggest a calculator