Finance & Calculators · 5 min read
How to Calculate Monthly Loan Payments
Before signing any loan, you should know exactly what your monthly payment will be — and how much interest you'll pay in total. Here's the formula and what it means.
The Monthly Payment Formula
M = P × [r(1+r)^n] / [(1+r)^n − 1] M = monthly payment P = loan principal (amount borrowed) r = monthly interest rate (annual rate ÷ 12) n = total number of payments (years × 12)
Example: $10,000 loan at 6% APR for 3 years: r = 0.005, n = 36 → $304.22/month. Total paid: $10,951.90 (you pay $951.90 in interest).
Impact of Loan Term on Total Cost
| $20,000 at 7% APR | Monthly Payment | Total Interest |
|---|---|---|
| 2 years (24 months) | $896 | $1,504 |
| 3 years (36 months) | $618 | $2,248 |
| 5 years (60 months) | $396 | $3,760 |
| 7 years (84 months) | $301 | $5,284 |
Key insight: Longer terms lower your monthly payment but significantly increase total interest paid.
Frequently Asked Questions
M = P × [r(1+r)^n] / [(1+r)^n − 1], where P = principal, r = monthly rate (annual ÷ 12), n = number of months.
Interest rate is the cost of borrowing. APR includes the interest rate plus fees, making it a more complete picture of the loan's total cost.
Early payments mostly cover interest. Over time, more covers principal. A loan calculator shows a month-by-month amortization breakdown.
Use PickConverter's free Loan Calculator. Enter amount, rate, and term to get monthly payment and full amortization schedule.
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