Understanding Your Loan Estimate

This calculator provides an estimate for fixed-rate loans, where the interest rate remains the same throughout the loan term. It helps you understand your potential monthly financial commitment and the overall cost of borrowing.

How to Use This Calculator

1. Loan Amount: Enter the total principal amount you intend to borrow.
2. Annual Interest Rate: Input the loan's Annual Percentage Rate (APR). For example, if the rate is 6.5%, enter 6.5.
3. Loan Term (Years): Specify the duration of the loan in years.
4. Click "Estimate My Payment" to see the breakdown.

Interpreting Your Results

• Estimated Monthly Payment: This is the calculated amount you would pay each month towards the loan.
• Total Principal Paid: This will be equal to the original loan amount you entered.
• Total Interest Paid: This is the total amount of interest you will pay over the entire life of the loan. A lower interest rate or shorter loan term can reduce this amount.
• Total Cost of Loan: This is the sum of the total principal paid and the total interest paid, representing the full amount you'll have paid by the end of the loan term.

The Formula Used (Monthly Payment)

The monthly payment (M) for a fixed-rate loan is calculated using the following standard formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

• M = Monthly Payment
• P = Principal Loan Amount (the amount borrowed)
• i = Monthly Interest Rate (Annual Interest Rate divided by 12, then divided by 100 to convert to decimal)
• n = Total Number of Payments (Loan Term in Years multiplied by 12)

Factors Influencing Loan Payments & Costs

• Loan Amount: Larger loans naturally lead to higher monthly payments and potentially more total interest paid.
• Interest Rate: A lower interest rate reduces both your monthly payment and the total interest paid. Even small differences in rates can have a significant impact over time.
• Loan Term:
  • A shorter loan term (e.g., 3 years vs. 5 years) will result in higher monthly payments but lower total interest paid.
  • A longer loan term will result in lower monthly payments but higher total interest paid over the life of the loan.
• Down Payment (not directly in this calculator): For loans like mortgages or car loans, a larger down payment reduces the principal amount borrowed, thereby lowering monthly payments and total interest.

Important Considerations

• This calculator assumes a fixed interest rate. Variable-rate loans can have fluctuating payments.
• The calculation does not include other potential costs associated with loans, such as origination fees, insurance (like PMI for mortgages), or late payment fees.
• Making extra payments towards the principal can help you pay off your loan faster and save on total interest.