How is a loan monthly payment calculated?

The monthly payment for a fixed-rate loan is calculated using the formula: M = P x r x (1 + r)^n / ((1 + r)^n - 1), where P is the principal, r is the monthly interest rate (annual rate / 12 / 100), and n is the total number of monthly payments. This ensures each payment covers interest and a portion of principal.

What is an amortization schedule?

An amortization schedule is a table that shows the breakdown of each loan payment into principal and interest over the life of the loan. Early payments are mostly interest, while later payments are mostly principal. The schedule helps you understand how much equity you build with each payment.

What is the difference between a personal loan and a line of credit?

A personal loan provides a lump sum with fixed monthly payments over a set term, while a line of credit gives you access to funds up to a limit that you can draw from as needed. Personal loans typically have fixed interest rates and predictable payments, making them easier to budget for.

Does paying off a loan early save money?

Yes, paying off a loan early reduces the total interest you pay because interest is calculated on the outstanding balance. However, some lenders charge prepayment penalties, so check your loan agreement. Even small extra payments each month can significantly reduce total interest and shorten the loan term.

Loan Calculator

Calculate monthly payments, total interest and total cost for any personal loan.

Loan Amount ($)

Interest Rate (% p.a.)

Loan Term

Monthly Payment

Total Interest

Total Repaid

Month	Payment	Principal	Interest	Balance

How Personal Loan Payments Work

A personal loan is a fixed-amount borrowing from a bank, credit union or online lender that you repay in equal monthly installments over a set period. Personal loans are commonly used for debt consolidation, home improvements, medical expenses, weddings and other major purchases. They typically carry fixed interest rates, which means your monthly payment stays the same throughout the loan term.

The Loan Payment Formula

Monthly payments are calculated using the standard amortisation formula: M = P × r × (1 + r)ⁿ / ((1 + r)ⁿ − 1), where P is the loan principal, r is the monthly interest rate (annual rate divided by 12 and by 100), and n is the total number of monthly payments. In the early months, a larger share of each payment goes toward interest. As the balance decreases, more goes toward principal repayment.

Reading the Amortization Schedule

The amortization table below the calculator shows a month-by-month breakdown of each payment into principal and interest, along with the remaining loan balance. This helps you understand exactly how your debt decreases over time and how much total interest you will pay. Use the schedule to plan extra payments and see how they shorten your loan term.

Comparing different loan amounts, rates and terms helps you find the most affordable option. Even a small reduction in interest rate or a shorter term can save hundreds or thousands in total interest paid.

Formula

PMT = P × [r(1 + r)ⁿ] / [(1 + r)ⁿ − 1]

Where:

PMT = monthly payment
P = principal (loan amount)
r = monthly interest rate (annual rate ÷ 12)
n = total number of payments (loan term in months)

Example Calculation

Scenario: $25,000 personal loan at 8% annual interest for 5 years

Step 1: Monthly rate r = 8% ÷ 12 = 0.006667
Step 2: Total payments n = 5 × 12 = 60
Step 3: PMT = $25,000 × [0.006667(1.006667)⁶⁰] / [(1.006667)⁶⁰ − 1]
Result: Monthly payment = $506.91 | Total interest paid = $5,414.60

This calculator is for informational purposes only and does not constitute financial, tax, or legal advice. Always consult a qualified professional for decisions specific to your situation.