Loan Calculator — Monthly Payment & Total Interest | ConverterPilot
About This Tool
The Loan Calculator helps you estimate monthly payments and total interest for personal loans, student loans, and business loans. See your effective annual rate, compare different interest rates side by side, and view a complete amortization schedule.
How to Use
- Enter the total loan amount you are borrowing.
- Enter the annual interest rate quoted by your lender.
- Choose the loan term in months or years.
- Select your loan type (for reference).
- Review your monthly payment and total interest paid instantly.
Detailed Explanation & Worked Example
A Loan Calculator is an essential financial tool designed to estimate fixed monthly payments and track the amortization of personal, student, or business loans. Understanding how loan payments are split between principal and interest is key to smart budgeting.
How Loan Amortization Works
Most amortized consumer loans (like personal, auto, or student loans) use a reducing balance method. Each month, your payment is applied first to the interest accrued for that month, and the remainder is used to reduce the principal balance.
Amortized Payment Formula
The monthly payment is calculated using the following formula:
PMT = P × [ r(1 + r)^n ] / [ (1 + r)^n - 1 ]
Where:
- PMT: The monthly installment payment.
- P: The loan principal (initial loan balance).
- r: The monthly interest rate (annual interest rate / 12 / 100).
- n: The total number of payments (months).
Step-by-Step Worked Example
Suppose you borrow $20,000 (or equivalent currency) at a 7.5% annual interest rate with a tenure of 5 years (60 monthly payments):
- Convert interest to monthly decimal:
r = 7.5 / 12 / 100 = 0.00625 - Number of periods:
n = 60 - Apply formula:
PMT = 20,000 × [ 0.00625 × (1.00625)^60 ] / [ (1.00625)^60 - 1 ] - Calculate power term:
(1.00625)^60 ≈ 1.45329 - Evaluate PMT:
PMT = 20,000 × (0.00625 × 1.45329) / (0.45329) ≈ 400.76 - Your monthly payment is $400.76. Over 5 years, you pay a total of
$400.76 × 60 = $24,045.60, making your total interest cost $4,045.60.