How loan payments work
Most loans are amortizing: you pay the same amount every month, and each payment covers that month's interest plus part of the balance. By the final payment, the balance reaches zero. The payment depends on three things: how much you borrow, the interest rate and how long you take to repay.
Payment = P × i ÷ (1 − (1 + i)−n)
P is the loan amount, i is the monthly rate (APR ÷ 12) and n is the number of monthly payments.
Worked example
A $10,000 personal loan at 9% APR for 3 years (36 payments):
- Monthly rate: 9% ÷ 12 = 0.75%
- Monthly payment: about $318.00
- Total interest over the loan: about $1,447.90
Ways to pay less interest
- Improve your credit score first. A lower rate makes the biggest difference.
- Choose a shorter term if you can afford the higher payment.
- Make extra payments toward principal whenever possible.
- Compare APRs, not just rates. APR includes most fees and gives a truer comparison.
Buying a car or a home? Use the car loan calculator or the mortgage calculator, which include down payments and taxes.
Last reviewed October 2026.
Frequently asked questions
How is a monthly loan payment calculated?
Most personal, auto and home loans use the amortization formula: Payment = P × i ÷ (1 − (1 + i)^−n), where P is the amount borrowed, i is the monthly interest rate (APR ÷ 12) and n is the number of monthly payments.
Why does more of my early payments go to interest?
Interest is charged on the balance you still owe. At the start the balance is highest, so more of each payment covers interest. As you pay the balance down, the interest part shrinks and more goes to principal.
Do extra payments really save money?
Yes. Any extra amount goes straight to principal, which lowers the balance that interest is charged on. Try the extra payment box to see how much sooner the loan ends and how much interest you save. Check first that your lender has no prepayment penalty.
Is a longer loan term better?
A longer term lowers the monthly payment but raises the total interest you pay. A shorter term costs more each month but less overall. Choose the shortest term whose payment fits comfortably in your budget.
Does this include fees?
No. Origination fees, insurance and other charges are not included. If a fee is added to the loan, include it in the loan amount. The APR quoted by your lender includes most fees, so using it as the rate gives a closer estimate.