How the Personal Loan Calculator Works
A personal loan gives you a lump sum now, which you repay in equal monthly payments over a fixed time. It is often used to consolidate debt, pay for a big purchase or cover an emergency. The Personal Loan Calculator shows what the loan will really cost: the monthly payment, the interest, the effect of any fee, and how paying a little extra each month can save time and money.
What you enter
- Loan amount: the amount you borrow, which is the amount you will repay.
- Interest rate: the yearly rate the lender charges.
- Loan term: how long you have to repay, in years or in months.
- Origination fee: a charge many lenders add, usually 1% to 8% of the loan. It is taken from the money you receive, so you get less than you borrowed, but you still repay the full amount.
- Extra payment (optional): an amount you add to every monthly payment.
How the monthly payment is worked out
The yearly rate is divided by 12 to get the monthly rate r. With n monthly payments and a loan of P, the standard formula gives the payment:
payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
Each month, interest is charged on what you still owe. The rest of your payment reduces the loan. As the balance falls, the interest gets smaller and more of every payment goes to the loan itself. If the rate is 0%, the payment is simply the loan divided by the number of months.
The true cost: APR
The interest rate alone does not include the fee. The APR, or annual percentage rate, does. The calculator finds the yearly rate at which your payments are worth exactly the money you received. When there is no fee, the APR is the same as the interest rate. With a fee, the APR is higher, and it is the fairer number to use when you compare loans.
A worked example
You borrow $20,000 at 11.5% for 5 years, with a 3% origination fee.
| Result | Amount |
|---|---|
| Monthly payment | $439.85 |
| Origination fee (3%) | $600.00 |
| Money you receive | $19,400.00 |
| Total interest | $6,391.13 |
| Total you repay, with the fee | $26,991.13 |
| True cost (APR) | 12.84% |
The rate is 11.5%, but the fee makes the true cost 12.84%. Here is what happens to the balance year by year:
| Year | You pay | Interest | Goes to the loan | Still owed |
|---|---|---|---|---|
| 1 | $5,278 | $2,138 | $3,140 | $16,860 |
| 2 | $5,278 | $1,757 | $3,521 | $13,339 |
| 3 | $5,278 | $1,330 | $3,948 | $9,390 |
| 4 | $5,278 | $851 | $4,427 | $4,964 |
| 5 | $5,278 | $315 | $4,964 | $0 |
Chart: what you still owe
The same loan. The longer the bar, the more you still owe at the end of that year:
Start ████████████████████████████████████████ $20,000 Year 1 ██████████████████████████████████ $16,860 Year 2 ███████████████████████████ $13,339 Year 3 ███████████████████ $9,390 Year 4 ██████████ $4,964 Year 5 (paid off)
Chart: what the loan costs in total
Loan ████████████████████████████████████████ 74% $20,000 Interest ████████████ 24% $6,391 Fee █ 2% $600
What an extra payment does
Extra money goes straight against the loan, so less interest is charged next month. Adding $100 a month to the loan above pays it off in 46 months instead of 60, which is 14 months sooner, and saves $1,567.76 in interest. There is no need to change the loan. Just check that your lender does not charge a penalty for paying early.
Tips for choosing a loan
- Compare the APR, not just the interest rate, so fees are counted.
- A longer term lowers the monthly payment but raises the total interest.
- Borrow only what you need. Every extra dollar costs interest.
- Check for prepayment penalties, late fees and other charges before you sign.
What this calculator does not include
- Late fees, prepayment penalties and insurance sold with the loan.
- Loans with a variable rate, or with interest-only periods.
- Small rounding differences. Lenders may round each payment to the cent, so the last payment can differ slightly.
This tool gives an estimate for general information only. It is not financial advice. Your lender's loan agreement has the exact figures.