Loan Calculator
Calculate your loan payments and total cost
How to Use This Calculator
This loan calculator helps you estimate monthly payments, total interest, and the true cost of borrowing before you commit to a loan. Follow these simple steps to get accurate results:
- Enter Your Loan Amount: Input the total amount you plan to borrow. This is your principal balance before any interest is added.
- Input the Interest Rate: Enter the annual interest rate offered by your lender. For the most accurate comparison between offers, use the APR rather than the basic interest rate.
- Set the Loan Term: Specify how long you want to repay the loan using years and months. Experiment with different terms to see how they affect your payments.
- Click Calculate: View your monthly payment, total amount paid over the loan's life, total interest charges, and projected payoff date.
Understanding Your Results
The monthly payment shows what you will owe each month. Total of payments represents the full amount you will pay including principal and interest. Total interest reveals the true cost of borrowing beyond the original loan amount. Compare different scenarios to find the balance between affordable monthly payments and minimizing overall interest costs.
Understanding Personal Loans
A personal loan is a type of installment loan that allows you to borrow a fixed amount of money and repay it over a set period with regular monthly payments. Unlike credit cards, which offer revolving credit, personal loans have a defined end date and predictable payments, making them easier to budget for and manage.
Secured vs Unsecured Loans
Personal loans come in two main forms: secured and unsecured. Secured loans require collateral, such as a savings account, vehicle, or other valuable asset. Because the lender has something to claim if you default, secured loans typically offer lower interest rates. Unsecured loans do not require collateral but generally come with higher interest rates since the lender assumes more risk. Most personal loans are unsecured, making them accessible to borrowers who do not want to risk their assets.
How Interest Rates Are Determined
Lenders consider several factors when setting your interest rate. Your credit score is the most significant factor, with higher scores earning better rates. Your debt-to-income ratio shows how much of your income goes toward existing debts. Employment history and income stability demonstrate your ability to make payments. Current economic conditions and the Federal Reserve's benchmark rates also influence what lenders charge. Shopping around and comparing offers from multiple lenders can help you find the best rate for your situation.
Loan Terms and Their Impact
The loan term, or repayment period, significantly affects both your monthly payment and total cost. Shorter terms mean higher monthly payments but substantially less interest paid overall. Longer terms reduce your monthly burden but increase the total interest you will pay. For example, a three-year term on a $15,000 loan might cost $1,500 less in total interest compared to a five-year term, even with the same interest rate.
APR vs Interest Rate
While often used interchangeably, APR and interest rate are different. The interest rate is simply the cost of borrowing the principal amount. The APR (Annual Percentage Rate) includes the interest rate plus any fees charged by the lender, such as origination fees or administrative costs. APR provides a more accurate picture of what you will actually pay, making it the better metric for comparing loan offers from different lenders.
Frequently Asked Questions
What is a good interest rate for a personal loan?
A good personal loan interest rate typically ranges from 6% to 12% for borrowers with excellent credit (scores of 720 or higher). Borrowers with good credit (690-719) may see rates from 13% to 18%, while those with fair credit (630-689) could face rates of 18% to 25%. Rates above 25% are common for borrowers with poor credit. The average personal loan rate nationwide hovers around 11% to 13%, but this varies based on economic conditions and individual lender policies.
How does my credit score affect my loan rate?
Your credit score is the primary factor lenders use to determine your interest rate. A higher score signals to lenders that you are a responsible borrower, qualifying you for lower rates. Someone with an excellent credit score (750+) might receive a rate of 7%, while someone with fair credit (650) could be offered 18% or higher for the same loan amount. This difference can cost thousands of dollars over the loan term. Before applying, check your credit report for errors and work on improving your score if possible.
Should I choose a shorter or longer loan term?
The choice depends on your financial priorities. A shorter term results in higher monthly payments but saves money on total interest. A longer term offers lower monthly payments but costs more overall. Consider your budget and goals: if you can comfortably afford higher payments, choose a shorter term to save money. If cash flow is tight, a longer term provides breathing room. You can always make extra payments on a longer-term loan to pay it off faster while maintaining the safety net of lower required payments.
What is the difference between APR and interest rate?
The interest rate is the basic cost of borrowing money, expressed as a percentage of the loan principal. APR (Annual Percentage Rate) includes the interest rate plus additional fees and costs associated with the loan, such as origination fees, which can range from 1% to 8% of the loan amount. Because APR reflects the true cost of borrowing, federal law requires lenders to disclose it. Always compare loans using APR rather than just the interest rate to get an accurate comparison.
Can I pay off my loan early without penalty?
Many lenders allow early payoff without penalties, but not all. Some lenders charge prepayment penalties to recoup the interest they would have earned. Before signing any loan agreement, carefully review the terms regarding early payoff. Federal credit unions are prohibited from charging prepayment penalties, and many online lenders have eliminated them to stay competitive. If you anticipate paying off your loan ahead of schedule, prioritize lenders that do not charge these fees.
What factors do lenders consider for approval?
Lenders evaluate multiple factors beyond your credit score. They examine your income and employment stability to ensure you can make payments. Your debt-to-income ratio (monthly debt payments divided by monthly income) should typically be below 36%. Lenders also review your credit history length, payment history, and existing credit mix. Some lenders consider alternative data like rent payments or utility bills. Having a co-signer with strong credit can improve your chances of approval and potentially lower your rate.
Is it better to get a loan from a bank or credit union?
Both have advantages. Credit unions are member-owned nonprofits that often offer lower rates and more personalized service. They may also be more flexible with borrowers who have less-than-perfect credit. Banks may offer convenience with existing account integration, faster online applications, and potentially higher loan amounts. Online lenders often provide competitive rates and fast approval but may lack in-person support. Compare offers from multiple sources, including at least one credit union, one traditional bank, and one online lender to find the best deal.
How much can I borrow with a personal loan?
Personal loan amounts typically range from $1,000 to $50,000, though some lenders offer up to $100,000 for well-qualified borrowers. The amount you can borrow depends on your credit score, income, debt-to-income ratio, and the lender's policies. Most lenders will not approve a loan if the monthly payment would exceed a certain percentage of your income. Only borrow what you need and can comfortably afford to repay. Taking on more debt than necessary increases your costs and financial risk.
Loan Examples
These real-world scenarios illustrate how different loan purposes, amounts, and terms affect your payments and total costs:
Debt Consolidation
Scenario: $15,000 at 10% APR for 3 years
Consolidating high-interest credit card debt into a personal loan can save money if you qualify for a lower rate. With this loan, your monthly payment would be approximately $484, with total interest of $2,424 over the loan term. This is significantly less than carrying the same balance on credit cards at 20%+ APR, where interest charges could exceed $5,000 over the same period.
Home Improvement
Scenario: $25,000 at 8% APR for 5 years
Financing a kitchen renovation or major home repair with a personal loan offers a fixed payment schedule. This loan would have monthly payments of approximately $507, with total interest of $5,420. While a home equity loan might offer lower rates, a personal loan does not put your home at risk and typically funds faster without requiring an appraisal.
Emergency Expense
Scenario: $5,000 at 12% APR for 2 years
When unexpected expenses arise, a personal loan can be a better alternative to credit cards. This smaller loan would require monthly payments of approximately $235, with total interest of $640. The fixed repayment schedule ensures the debt is eliminated in exactly 24 months, unlike revolving credit card debt that can linger indefinitely with minimum payments.
Tips for Getting a Better Loan
Follow these strategies to secure the best possible loan terms and save money over the life of your loan:
- Check Your Credit Score First: Review your credit report from all three bureaus before applying. Dispute any errors, which can artificially lower your score. Even a 20-point improvement can qualify you for better rates.
- Compare Multiple Lenders: Get quotes from at least three to five lenders, including banks, credit unions, and online lenders. Many offer pre-qualification with a soft credit pull that does not affect your score.
- Consider Total Cost, Not Just Monthly Payment: A lower monthly payment with a longer term often costs more in total interest. Calculate the full cost of each loan option before deciding.
- Read the Fine Print: Look for origination fees, prepayment penalties, late payment fees, and any other charges. A loan with a slightly higher rate but no fees may cost less overall.
- Time Your Application: Apply when your credit is at its best. Avoid opening new credit accounts or making large purchases before applying for a loan.
- Consider a Co-signer: If your credit is not strong, a co-signer with good credit can help you qualify for better rates. Remember that they are equally responsible for repayment.
Sources: Consumer Financial Protection Bureau (CFPB), Federal Reserve
How to use this loan calculator
This calculator helps you understand the true cost of borrowing before you take out a loan. Follow these steps to calculate your loan payments:
- Enter the loan amount you need to borrow. This is the principal, which is the total amount before any interest is added.
- Enter the annual interest rate offered by your lender. This is typically expressed as an APR (annual percentage rate). If you are comparing loan offers, use the APR rather than the basic interest rate.
- Enter the loan term in years and months. Longer terms mean lower monthly payments but more total interest paid. Shorter terms mean higher payments but significant interest savings.
- Click calculate to see your monthly payment, total amount you will pay over the life of the loan, total interest charges, and your payoff date.
Try different combinations of loan amounts, rates, and terms to find the balance between affordable monthly payments and minimizing total interest costs.
Understanding how loans work
A loan is an agreement where a lender provides money to a borrower who agrees to repay the principal plus interest over a specified time period. Understanding the mechanics of loans helps you make informed borrowing decisions and potentially save thousands of dollars.
Most consumer loans use a process called amortization, where each monthly payment is divided between interest and principal. In the early months, a larger portion goes toward interest. As the loan matures, more of each payment goes toward reducing the principal balance. This is why making extra payments early in a loan term has such a dramatic effect on total interest paid.
The interest rate is the cost of borrowing expressed as a percentage of the loan amount. Rates vary widely based on the type of loan, your credit score, income, and current economic conditions. Even small differences in rate can add up to substantial amounts over the life of a loan. For example, on a $25,000 five-year loan, the difference between 7% and 10% interest is nearly $2,000 in additional cost.
Your credit score is one of the biggest factors determining what interest rate you qualify for. Scores above 750 typically get the best rates, while scores below 650 may result in significantly higher rates or loan denial. Before applying for a loan, consider improving your credit score by paying down existing debt, correcting errors on your credit report, and avoiding new credit applications.
Common loan types and typical rates
Different types of loans serve different purposes and come with varying terms and interest rates. Here is an overview of the most common loan types:
Personal loans
Personal loans are unsecured loans used for various purposes including debt consolidation, home improvements, or major purchases. Terms typically range from 2-7 years with interest rates from 6-36% depending on creditworthiness. Because they are unsecured, rates are higher than secured loans like auto loans or mortgages.
Auto loans
Auto loans are secured by the vehicle being purchased. Terms typically range from 3-7 years with rates from 4-15% depending on whether the car is new or used and your credit score. Longer terms mean lower payments but more interest and the risk of owing more than the car is worth.
Student loans
Student loans help finance education costs. Federal loans have fixed rates set by Congress, currently around 5-8%. Private student loans vary widely, from 4-15% depending on creditworthiness. Federal loans offer more flexible repayment options and potential forgiveness programs.
Home equity loans
Home equity loans let homeowners borrow against their equity. Rates typically range from 6-10%, lower than personal loans because the home serves as collateral. Terms can extend to 30 years, and interest may be tax-deductible in some cases.
Loan calculation examples
Here are practical examples showing how loan terms affect your costs:
Example 1: personal loan for debt consolidation
You borrow $15,000 at 10% APR to consolidate credit card debt.
- 3-year term: $484/month, $2,424 total interest
- 5-year term: $319/month, $4,122 total interest
- Savings with shorter term: $1,698
Example 2: comparing loan offers
You need $20,000 and receive two offers for 5-year terms:
- Offer A (8% APR): $406/month, $4,332 total interest
- Offer B (12% APR): $445/month, $6,693 total interest
- Choosing the lower rate saves: $2,361
Example 3: effect of loan term on total cost
$25,000 loan at 7.5% interest:
- 3 years: $777/month, $2,985 total interest
- 5 years: $500/month, $5,023 total interest
- 7 years: $383/month, $7,159 total interest
The loan payment formula
This calculator uses the standard amortization formula that banks and lenders use to calculate fixed-rate loan payments:
Where:
M = Monthly payment
P = Principal (loan amount)
r = Monthly interest rate (annual rate ÷ 12)
n = Total number of payments (years × 12 + months)
For example, a $20,000 loan at 8% annual interest for 5 years:
- P = $20,000
- r = 0.08 ÷ 12 = 0.00667
- n = 5 × 12 = 60 payments
- M = $20,000 × [0.00667(1.00667)^60] / [(1.00667)^60 - 1] = $406
Frequently asked questions
How is a loan payment calculated?
Loan payments are calculated using an amortization formula that considers the principal amount, interest rate, and loan term. The formula ensures equal monthly payments that cover both principal and interest, with more going toward interest early in the loan and more toward principal later. This is why your loan balance decreases slowly at first and then accelerates near the end.
What is a good interest rate for a personal loan?
Good personal loan rates range from 6-12% for borrowers with excellent credit (scores above 740). Average rates are typically 12-20% for borrowers with good credit, while those with fair or poor credit may see rates of 20-36%. Your credit score, income, debt-to-income ratio, and the lender you choose all affect the rate you qualify for.
Should I choose a shorter or longer loan term?
Shorter terms have higher monthly payments but much lower total interest costs. Longer terms have lower monthly payments but cost significantly more overall. Choose based on your budget and financial goals. If you can comfortably afford higher payments without straining your budget, a shorter term saves substantial money in interest.
What is the difference between APR and interest rate?
The interest rate is simply the cost of borrowing the principal amount. APR (Annual Percentage Rate) includes the interest rate plus other fees and costs associated with the loan, such as origination fees, giving you a more complete picture of the loan's true cost. Always compare loans using APR rather than just the interest rate.
Can I pay off my loan early?
Most loans allow early payoff without penalty, but some do charge prepayment penalties. Check your loan agreement carefully before making extra payments. Paying off a loan early saves interest and can improve your credit score by reducing your debt-to-income ratio and showing responsible debt management.
How does my credit score affect my loan rate?
Your credit score is one of the primary factors lenders use to set your interest rate. Excellent credit (750+) qualifies for the best rates, while poor credit (below 630) results in much higher rates or denial. Improving your score by even 50-100 points before applying can save you thousands in interest over the loan term.
What is loan amortization?
Amortization is the process of paying off a loan through regular payments over time. Each payment includes both principal and interest, with the proportion changing over the loan term. Early payments are mostly interest, while later payments are mostly principal. An amortization schedule shows exactly how each payment is divided.
Should I get a secured or unsecured loan?
Secured loans require collateral (like a car or home) and typically offer lower rates because the lender has less risk. Unsecured loans do not require collateral but have higher rates. Choose based on your situation: if you have an asset to secure the loan and want lower rates, secured may be better. If you do not want to risk an asset, unsecured is safer.
Did you know?
- Americans hold over $17 trillion in total debt, including mortgages, auto loans, student loans, and credit cards.
- A 1% lower interest rate on a $20,000 loan saves approximately $1,000 over a 5-year term.
- The average American household has about $104,000 in total debt, not including mortgages.
- Making one extra payment per year on a loan can shorten the term by several months and save significant interest.
- Personal loan originations have increased by over 50% in the past decade as consumers seek alternatives to credit cards.