Loan Payment Formula
Monthly payments are calculated using the standard amortization formula. Each payment covers accrued interest first, with the remainder reducing principal. Early payments are mostly interest; later payments are mostly principal.
PMT = P x [r(1+r)^n] / [(1+r)^n - 1]
P = principal, r = monthly rate, n = number of payments
Loan Comparison
| Loan | Rate | Term | Monthly | Total Interest |
|---|---|---|---|---|
| $25,000 | 6.5% | 3 yrs | $766 | $1,578 |
| $25,000 | 6.5% | 5 yrs | $489 | $4,374 |
| $25,000 | 11% | 5 yrs | $543 | $7,597 |
Frequently Asked Questions
A shorter term means higher monthly payments but far less total interest. A longer term lowers payments but costs more overall. Choose the shortest term your budget can comfortably handle.
Excellent credit (750+) typically gets rates 3-5% lower than fair credit (600-650). On a $25,000 5-year loan, a 5% rate difference saves about $3,500 in total interest.