The standard loan formula
Most personal, car and student loans are amortizing: a fixed monthly payment covers that month's interest plus a slice of principal, and the principal share grows over time until the balance reaches zero. The payment comes from the standard annuity formula.
Payment = P × i ÷ (1 − (1 + i)^−n), where i is the monthly rate and n the number of months
A $10,000 loan at 10% over 36 months costs about $323 a month and $1,616 in interest. Stretching it to 60 months lowers the payment to about $212 but raises interest to roughly $2,750.
How rate and term change the cost
The rate and the term together decide the total cost of a loan. Borrowing $10,000 at 10% for 36 months means a payment of about $323 and about $1,620 in interest. Stretching the same loan to 60 months lowers the payment to about $212 but raises the interest to about $2,750. At 15% for 36 months, the payment rises to about $347 and interest to about $2,480.
When comparing offers, look at the APR rather than the headline interest rate, because the APR includes most fees, and compare total interest as well as the monthly payment. A lower payment is not a better deal if it comes from a much longer term. The second tab of this calculator works in reverse, showing how much you can borrow for a payment you can afford.
Common questions
What is the monthly payment on a $10,000 loan at 10% for 3 years?
About $323 a month, with about $1,620 of interest over the life of the loan.
How is a loan payment calculated?
With the amortization formula shown above, using the monthly rate (APR ÷ 12) and the number of payments.
What is the difference between APR and interest rate?
APR includes certain fees as well as interest, so it is the better number for comparing loans.
Does a shorter term save money?
Yes. Payments are higher, but total interest is lower.
This calculator gives estimates for planning. Real returns, rates and prices change, so treat the result as a guide rather than a promise. Read how we build and check our calculators.