Loan Calculator | Free Monthly Payment & Amortization Tool
Calculate loan payments, see how much you can borrow, and discover how extra payments save you money.
How Loan Payments Are Calculated
Every loan payment consists of two parts: principal (the amount you borrowed) and interest (the cost of borrowing). The standard amortization formula calculates a fixed monthly payment that ensures the loan is fully paid off by the end of the term.
Where: M = Monthly Payment, P = Loan Principal
r = Monthly Interest Rate (Annual ÷ 12)
n = Total payments (Years × 12)
📊 Real Example: $30,000 Car Loan at 6% for 5 Years
| Metric | Value |
|---|---|
| Loan Amount | $30,000 |
| Interest Rate | 6% APR |
| Term | 5 years (60 months) |
| Monthly Payment | $579.98 |
| Total Interest Paid | $4,799 |
| Total Cost of Loan | $34,799 |
Understanding Amortization
Amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment covers the interest due and reduces the principal balance. In the early years of a loan, most of your payment goes toward interest. As the principal decreases over time, more of your payment goes toward the principal. An amortization schedule shows exactly how much of each payment goes to interest vs. principal.
| Year | Payment | Principal | Interest | Remaining Balance |
|---|---|---|---|---|
| 1 | $6,960 | $5,318 | $1,642 | $24,682 |
| 2 | $6,960 | $5,642 | $1,318 | $19,040 |
| 3 | $6,960 | $5,986 | $974 | $13,054 |
| 4 | $6,960 | $6,351 | $609 | $6,703 |
| 5 | $6,960 | $6,703 | $257 | $0 |
How Extra Payments Save You Money
Making extra payments toward your principal reduces the total interest you pay and shortens your loan term. Even small additional payments can make a significant difference:
| Extra Payment | Payoff Time | Total Interest | Interest Saved |
|---|---|---|---|
| $0 (Regular) | 60 months | $4,799 | — |
| $50/month | 52 months | $4,152 | $647 saved |
| $100/month | 46 months | $3,670 | $1,129 saved |
| $200/month | 37 months | $2,843 | $1,956 saved |
📈 Case Study: Paying Off Student Loans Faster
Sarah has $45,000 in student loans at 5.5% interest over 10 years. Her regular payment is $488/month. By paying an extra $150/month (total $638), she saves $4,287 in interest and pays off the loan 3.2 years early. That's a significant savings that could go toward a house down payment or retirement savings.
Loan Affordability
Use our Affordability calculator to determine how much you can borrow based on your desired monthly payment. This is useful when car shopping or planning a personal loan — you can set a monthly payment you're comfortable with and see the maximum loan amount that fits your budget. As a general rule, your monthly loan payment should not exceed 10-15% of your monthly take-home pay for a car loan, or 36% of your gross income for total debt payments (including mortgage, car, and student loans).
Common Loan Mistakes
Mistake 1: Only Looking at the Monthly Payment
A longer term lowers payments but increases total interest. A 6-year vs 5-year car loan might save $50/month but cost an extra $1,200 in interest.
Mistake 2: Ignoring the Interest Rate
A 0.5% difference on a $30,000 loan saves $480 over 5 years. Always shop around for the best rate.
Mistake 3: Not Considering Early Payoff Fees
Some loans have prepayment penalties. Check before making extra payments.
Mistake 4: Borrowing the Maximum Offered
Just because you qualify for $40,000 doesn't mean you should borrow $40,000. Borrow only what you need.
Loan Calculator Pros & Cons
Pros
- ✅ Instant monthly payment & total interest
- ✅ Affordability & extra payment modes
- ✅ Free forever — no subscriptions
- ✅ Works offline after page load
- ✅ No sign-up or email required
Cons
- ✗ No Excel/CSV export option
- ✗ No dedicated mobile app
Frequently Asked Questions
How do I calculate monthly loan payments?
Use the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where M = monthly payment, P = principal, r = monthly interest rate (annual rate ÷ 12), and n = total number of payments (years × 12). For a $30,000 loan at 6% for 5 years: monthly payment = $580. Our calculator does this instantly.
How much can I borrow based on my monthly payment?
Our affordability calculator reverse-engineers the loan formula. Enter your desired monthly payment, interest rate, and term to find the maximum loan amount. For example, a $500/month payment at 6% for 5 years means you can borrow approximately $25,900.
How do extra payments save money?
Extra payments reduce your principal faster, which means less interest accrues. On a $30,000 loan at 6% for 5 years: paying an extra $50/month saves $647 in interest and pays off the loan 8 months early. Paying $100/month extra saves $1,129 and pays off 14 months early.
Reviewed by Shahid
Content Reviewer & Calculator SpecialistContent reviewer specializing in marketing, finance, health, and math calculators on GM Calculator.