Understanding Your Loan Payments

Whether you're taking out a mortgage, an auto loan, or a personal loan, understanding how your monthly payment is calculated is key to managing your finances. Our loan calculator uses the standard amortization formula to give you a clear picture of your financial commitment.

The Loan Amortization Formula

The calculation for a monthly loan payment (M) is based on the principal amount (P), the monthly interest rate (r), and the number of payments (n). The formula is: M = P * [r(1+r)^n] / [(1+r)^n - 1].

• Principal (P): The total amount of money you are borrowing.
• Monthly Interest Rate (r): Your annual interest rate divided by 12.
• Number of Payments (n): The total number of months in your loan term (e.g., a 30-year loan has 360 payments).

What is Amortization?

Amortization is the process of paying off a loan over time with regular payments. At the beginning of the loan, a larger portion of your payment goes toward interest. As time goes on, more of your payment starts going toward paying down the principal balance. Our calculator helps you see the total interest you'll pay over the life of the loan, highlighting the long-term cost of borrowing.