How to work out a loan payment
- Enter the Loan amount you plan to borrow.
- Enter the yearly Interest rate and the Term in years. Part years work too: 2.5 years is 30 payments.
- Read the monthly payment, the total interest and the schedule of principal, interest and balance, by year or by month. Add an Extra payment to see how much sooner you’d finish and the interest you’d save.
Shorter term or lower payment
A longer term makes each payment smaller but adds to the total interest, because you owe money for longer. Here is the same 25,000 loan at 7% over three terms:
| Term | Monthly payment | Total interest |
|---|---|---|
| 3 years | 771.93 | 2,789.39 |
| 5 years | 495.03 | 4,701.80 |
| 7 years | 377.32 | 6,694.63 |
Stretching from 5 to 7 years saves about 118 a month but costs almost 2,000 more in interest. If the shorter term’s payment fits your budget comfortably, it is usually the cheaper choice.
What the schedule shows
The table lists each year of the loan: how much of that year’s payments went to principal, how much went to interest, and the balance left at the end. On a fixed-rate loan the payment never changes, but the interest column shrinks every year while the principal column grows. That is why paying off a loan early saves the most when you do it in the first few years.
The calculator assumes a fixed rate and one payment a month. Variable-rate loans, payment holidays and fees will change the real figures, so check the lender’s own quote before you sign.