Calculate Personal Loan Interest: Formula and Example

This calculator estimates the monthly payment and total interest on a fixed-rate personal loan from its amount, annual percentage rate (APR), and term. Enter the figures from a lender’s disclosure to see the estimated payment and how much interest the scheduled payments add up to.

Formula

For a fixed-rate loan with equal monthly payments, first calculate the monthly interest rate, then use the amortizing-loan payment formula:

Monthly rate: r = APR / 1,200
Number of payments: n = loan term in years × 12
Monthly payment: M = P × r / [1 − (1 + r)⁻ⁿ]
Total interest: I = M × n − P

• P is the amount borrowed, in dollars.
• APR is the annual percentage rate entered as a percentage, such as 8 for 8% per year.
• r is the monthly rate as a decimal; dividing the percentage APR by 1,200 converts it to that form.
• n is the number of monthly payments.
• M is the calculated monthly payment in dollars.
• I is the total interest in dollars across the scheduled payments.

The calculator uses the unrounded payment in the displayed payment formula and shows the result to two decimal places. Its total-interest output uses the displayed payment rounded to cents, multiplied by the number of payments, then subtracts the principal. Actual lenders may round each installment and the final payment according to their own schedules, so a real payoff total can differ slightly.

Worked Example

Using the calculator’s default inputs—$20,000 principal, 8% APR, and a five-year term:

1. Convert the APR to a monthly decimal rate: r = 8 / 1,200 = 0.0066667, or about 0.6667% per month.
2. Convert the term to monthly payments: n = 5 × 12 = 60.
3. Substitute into the payment formula: M = 20,000 × 0.0066667 / [1 − (1.0066667)⁻⁶⁰].
4. The monthly payment is approximately $405.53 when rounded to cents.
5. Total of scheduled payments using that rounded amount: $405.53 × 60 = $24,331.80.
6. Total interest: $24,331.80 − $20,000 = $4,331.80.

These figures are estimates from the stated assumptions. The payment calculation before display-rounding is approximately $405.528, which rounds to $405.53. Multiplying the rounded payment by 60 gives the calculator’s total; a lender’s payment schedule may handle rounding or the last installment differently.

Assumptions

• The interest rate stays fixed for the full term.
• Payments are made monthly, with the first payment one month after the loan is issued.
• Interest is modelled monthly at APR divided by 12.
• Fees, taxes, insurance, and other charges are not included. APR may reflect certain borrowing costs in the lender’s disclosure, but this calculator does not separately itemize fees or model how they are charged.

How Personal Loan Interest Works

Most fixed-payment installment loans are amortized: each scheduled payment covers interest due for that period and reduces the remaining balance. Early in repayment, the balance is larger, so more of a payment goes toward interest. As the balance falls, the interest portion generally shrinks and more of each level payment reduces principal.

For example, at the start of the default example, one month’s interest on $20,000 at 8% APR is about $133.33 ($20,000 × 0.0066667). From a $405.53 payment, roughly $272.20 would reduce principal before any lender-specific rounding or charges. The next month’s interest is calculated on the lower balance, not on the original $20,000.

APR is useful when reviewing a disclosed borrowing cost, but the calculator treats the entered APR as the rate used in the monthly interest formula. A lender may present an interest rate separately from APR, and fees or payment timing can affect the actual schedule. Use the rate and amount that match the specific disclosure, and check whether fees are deducted from the amount delivered to you or added to the balance.

How to Use and Read the Results

• Loan amount: Enter the principal used to calculate payments. If a fee is financed, confirm whether the lender’s stated loan amount includes it.
• APR: Enter a percentage, not a decimal: type 8 for 8%, not 0.08. Obtain the applicable figure from the lender rather than relying on an illustrative rate.
• Term: Enter the repayment length in years. The formula converts it to a whole number of monthly periods; actual contract dates can create a different first or last period.
• Monthly payment: This is the estimated fixed installment under the model, not a statement of eligibility or affordability.
• Total interest: This is estimated interest over the scheduled term, based on the rounded monthly payment and excluding any charges not represented in the inputs.

To compare two loan scenarios arithmetically, hold the principal constant and change one input at a time. A longer term usually means more payment periods and can increase the total interest even if the monthly installment falls. A higher APR increases the interest cost for the same principal and term. These are mathematical effects, not a recommendation about which loan to choose.

Common Calculation Mistakes and Limits

• Using 8 instead of 0.08 in a manually written formula: The calculator expects APR as a percentage and divides by 1,200. In a formula written with a decimal annual rate, 8% must be written as 0.08.
• Multiplying APR by the full term: That does not account for the declining loan balance. The amortization formula calculates interest period by period through its payment equation.
• Confusing total payments with total interest: Payments include repayment of principal. Subtract the borrowed principal from the sum of payments to estimate interest.
• Assuming the APR captures every cash-flow detail: The tool does not model fees paid upfront, a fee deducted from proceeds, late charges, variable rates, skipped payments, or a different payment schedule.
• Rounding at different stages: Rounding the monthly payment to cents before multiplying can create a small difference from calculations that retain extra decimal places or adjust the final installment.

This is a standard fixed-rate, level-payment calculation. It is not suitable without modification for a variable rate, interest-only period, irregular payment dates, or a loan whose balance changes through additional borrowing. For an exact account balance or payoff quote, use the lender’s current figures; the remaining balance depends on payment dates and transactions already posted.

Frequently Asked Questions

How do I calculate the interest on a personal loan?
For a fixed-rate, monthly-payment loan, calculate the amortized monthly payment from principal, monthly rate, and number of payments. Multiply the payment by the number of payments, then subtract the original principal to estimate total interest.

Is personal loan interest calculated monthly?
This calculator models monthly compounding at APR divided by 12 and monthly payments. A lender’s contract and payment schedule determine the actual calculation, including any irregular periods or rounding.

Does a longer loan term mean more interest?
For the same principal and APR under this fixed-rate model, extending the term adds payment periods and generally raises total interest, although the calculated monthly payment is lower.

Is APR the same as the interest rate?
Not necessarily. APR is a disclosed annualized borrowing-cost measure, while an interest rate describes the rate charged on the balance. The calculator uses the APR input as the periodic rate basis and does not separately model fees.

Why does my lender’s total differ from this estimate?
Possible reasons include fee treatment, different day counts or first-payment timing, payment rounding, a final-payment adjustment, or transactions such as extra payments. The lender’s itemized disclosure and account schedule contain the contract-specific figures.

This result is an estimate, and the lender’s disclosure gives the exact figures.

Related

• 50/30/20 Budget Calculator
• Debt-to-Income Ratio Calculator (DTI)
• Credit Card Payoff Calculator: Months to Pay Off and Interest

in p | Loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Loan term | years | 5 | 0.0833 | 50
out pmt | Monthly payment | $ | p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)) | 2
out int | Total interest | $ | pmt * yrs * 12 - p | 2