Loan Calculation Formula
Loans are calculated through a declining balance calculation.
Frequently Asked Questions
How can I minimize the amount of interest I pay on a loan?
The total amount paid to interest over a loan can be minimized by actions such as using longer compounding terms and shorter payment schedules, as well as borrowing less money and prepaying as much of the loan as soon as possible.
How can I pay the loan off as quick as possible?
A loan is generally paid down faster if there are larger payments made, more frequent payments made, a lower interest rate negotiated (or consolidated), and longer compounding terms used.
How can I lower my payments?
The most common ways of lowering payments are making the loan a longer term, using longer compounding terms, negotiating or consolidating to a lower interest rate, or finding a loan that allows skipping or deferring occasional payments.
How precise is this calculator?
Assuming the inputs are correct, this calculator is quite precise however in many cases will not match actual loan performance to the penny. Differences can occur for different reasons, such as rounding errors, differences with calendar dates, and specific clauses in the actual loan. For more detail on how loans are calculated, see our page on how loans are calculated.
The loan amount is the total amount of the loan.
The rate is the annual percentage rate (APR). For loan calculations using annual percentage yield (APY), use the APY amount and select annual compounding.
The compounding period is how frequently interest is compounded on the loan. Shorter compounding periods will result in more interest being paid on a loan.
Payment Period (Years and Months)
This is the total combined length of the loan. A 3 year loan can be listed as either 3 years and 0 months or 0 years and 36 months, while a 3 1/2 year loan can be listed as 3.5 years and 0 months or 42 months (or any combination of years and months).
This is how frequently payments are made on the loan. Accelerated payments (accelerated weekly, bi-weekly, and semi-monthly) will use the calculated monthly rate and divide it 4 (for weekly) or 2 (for bi-weekly or semi-monthly) - these loans will be finished sooner, however will have a similar payment structure to monthly payment plans.
This is the calculated payment amount to pay off the loan with the selected interest rates, compounding, and payment terms.
Number of Payments
This is the number of payments needed to pay off the loan in the selected timeline. With most payment periods, this will be a whole number (no decimal), however with some accelerated payment periods (such as accelerated weekly, bi-weekly, or semi-monthly), this can sometimes result in a partial payment for the final payment (as the loan is being paid down sooner).
Total Amount Paid
This is the total amount that is paid over the lifetime of the loan, including both principal and interest.
Total Interest Paid
This is the total amount of interest that is paid over the lifetime of the loan (total amount paid minus total principal paid).