Understanding Your Loan Payment

Your loan payment is the fixed amount you pay back to a lender every month. This payment is typically made up of two components: principal and interest. Our calculator not only computes this payment but also shows you the total cost over the life of the loan.

Key Factors That Determine Your Payment

• Loan Amount (Principal): This is the total amount of money you are borrowing. A larger loan amount will result in a higher monthly payment.
• Annual Interest Rate: The rate at which the lender charges you for borrowing the money. A higher interest rate increases your payment and the total cost of the loan.
• Loan Term: The length of time you have to repay the loan. A shorter term (e.g., a 15-year mortgage vs. a 30-year) will have higher monthly payments but will save you a significant amount of money in total interest.

What is an Amortization Schedule?

The amortization schedule provided by this calculator gives you a year-by-year breakdown of your loan. You'll notice a key pattern: in the early years of your loan, a large portion of your monthly payment goes toward interest. As time goes on and your loan balance decreases, more and more of your payment goes toward paying down the principal. This schedule helps you visualize how you are building equity and paying down your debt over time.

The True Cost of a Loan

While the monthly payment is important for your budget, the "Total Interest Paid" is the figure that represents the true cost of borrowing money. By experimenting with different loan terms and rates, you can see how these variables drastically affect how much you pay in interest over the long run. To see how extra payments can further reduce this cost, check out our Advanced Loan Calculator.