How to Calculate Loan Interest and Monthly Payments

This calculator estimates the monthly payment and total interest for a fixed-rate, fully amortizing loan. Enter the amount borrowed, annual interest rate (APR), and term in years to see the payment and the interest paid over the full term.

Formula

For a fixed-rate loan repaid in equal monthly installments, calculate the monthly payment with:

Payment = P × r ÷ [1 − (1 + r)⁻ⁿ]

• P is the principal, or amount borrowed, in dollars.
• r is the monthly interest rate as a decimal: APR ÷ 100 ÷ 12. In the calculator expression, APR ÷ 1200 converts a percentage per year into a decimal per month.
• n is the number of monthly payments: loan term in years × 12.

The estimated total interest is monthly payment × n − P. The calculator uses the unrounded payment formula for its displayed monthly payment and total interest expression; displayed dollar amounts are rounded to two decimal places. A lender’s actual schedule may calculate and round interest and payments differently.

Worked Example

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

1. Convert APR to a monthly decimal rate: 8 ÷ 1200 = 0.0066667.
2. Find the number of payments: 5 × 12 = 60.
3. Apply the payment formula: $20,000 × 0.0066667 ÷ [1 − (1 + 0.0066667)⁻⁶⁰] = about $405.53 per month.
4. Calculate total interest from the unrounded payment: payment × 60 − $20,000 = about $4,331.04.

So the calculator displays a monthly payment of $405.53 and total interest of $4,331.04. Totals calculated using the displayed, rounded payment may differ by a few cents.

Assumptions

• The interest rate is fixed for the full term.
• Payments are equal, made monthly, and made at the end of each payment period.
• Interest compounds monthly at APR ÷ 12.
• The estimate excludes fees, taxes, insurance, PMI, and escrow, as well as late payments, extra payments, and other changes to the schedule.

What You’ll Need

• The amount financed, not necessarily the item’s cash price. If charges are added to the loan, check whether they are included in the principal.
• The APR or interest rate supplied in the lender’s offer or disclosure. Use the figure and rate definition that match the loan terms.
• The repayment term in years. For a term stated in months, divide the number of months by 12 before entering it.
• A calculator or spreadsheet if you want to verify the result. Keep the full precision in intermediate steps and round money only for presentation.

Step-by-Step

1. Identify the principal. Enter the balance on which interest will be charged. Do not enter the total of all future payments. If you are calculating an existing loan, use its current principal balance and the remaining term, rather than the original amount and original term.
2. Use the correct rate. Enter the annual percentage rate as a percentage number, such as 8 for 8%, not 0.08. If you have a nominal interest rate and an APR that differ, read the loan documents to determine which figure the estimate is intended to use. The formula treats the entered APR as a fixed nominal annual rate divided into 12 monthly periods; it does not separately model fees included in an APR.
3. Convert the term to monthly payments. Multiply the number of years by 12. A five-year term has 60 monthly periods. The calculator performs this conversion for you.
4. Calculate the monthly payment. Convert APR to a monthly decimal rate by dividing by 1200, then substitute the principal, monthly rate, and number of payments in the payment formula. This payment covers interest due for the period and part of the principal.
5. Calculate total interest. Multiply the calculated monthly payment by the number of payments, then subtract the principal. This estimates interest over the full schedule if every payment is made as planned. Total payments include repayment of principal as well as interest; they are not all interest.
6. Compare the estimate with the disclosure. Check the lender’s payment schedule for the official payment amount, payment dates, fees, and total interest. If any of those terms differ from the calculator’s assumptions, the disclosed figures may not match this estimate.

Common Mistakes

• Using the wrong rate format: Enter 8 for 8%, not 0.08. Dividing an already-decimal rate by 1200 again produces a result that is far too small.
• Confusing APR and monthly rate: The calculator expects an annual percentage. Do not enter a monthly rate as though it were annual.
• Using the original term for a current balance: When estimating interest remaining on an existing loan, use the current balance and remaining months. Past interest cannot be inferred from those figures.
• Rounding too early: Keep additional decimal places while calculating. Rounding each monthly interest amount independently can change the final total.
• Assuming all borrowing costs are interest: Fees, insurance, taxes, and other charges may affect the amount paid but are not included in this interest result.

Tips

• Use the same principal, rate, and term shown together in the relevant loan disclosure; mixing terms from different offers does not produce a meaningful comparison.
• For an adjustable-rate loan, this fixed-rate formula can only show an estimate for a period in which the entered rate remains unchanged. Later rate changes can alter payments and total interest.
• For a rough check, total payments should exceed principal when the loan has a positive rate and a positive term. The difference is the estimated interest under the formula.
• Save the inputs along with the result. That makes it easier to identify whether a difference comes from the rate, loan balance, term, fees, or payment schedule.

Troubleshooting

The payment looks too high or too low: Verify that the amount is the principal, that APR is entered as a percentage, and that years have not been entered as months. Confirm that the term is the remaining term if you are working with an existing balance.

The lender’s number differs: Check whether the quoted payment includes fees or other charges, whether the APR differs from the note rate, and whether the first payment period is a different length. Payment timing, day-count methods, rounding, and loan structure can also matter. Use the official disclosure for the contractual figures.

The total interest seems inconsistent: Confirm that you subtracted principal from total payments, not the other way around. A small difference can result from multiplying a rounded displayed payment rather than the full-precision payment used by the formula.

The loan is not fixed-rate or has unusual payments: This estimate assumes equal monthly payments at one rate. A balloon payment, interest-only period, changing rate, or extra payments needs a schedule that reflects those features.

Frequently Asked Questions

How do I calculate interest on a loan for one month?
For a simple monthly estimate, multiply the current principal by APR ÷ 1200. This assumes a nominal annual rate divided into monthly periods; the lender may use a different calculation method.

Is total interest the same as total repayment?
No. Total repayment includes principal and interest. Under this estimate, subtract the original principal from all scheduled payments to find total interest.

Can I use this for a variable-rate loan?
Only as a snapshot assuming the entered rate stays fixed for the entire term. A changing rate requires recalculating the schedule when the rate changes.

Why does my actual interest differ by a few cents?
Lenders may round each payment or interest amount to cents, use exact payment dates, or apply a different day-count convention. Small differences can accumulate over many periods.

Does this include an origination fee?
No. The calculator uses principal, APR, and term only; it does not calculate separate fees. Check the lender’s disclosure for any charges and how they are treated.

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

Related

• Simple Interest Loan Calculator: I = P × r × t
• Interest-Only Loan Calculator: Payment During and After the Interest-Only Period
• APR Calculator: The True Rate of a Loan With Fees

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