Jump to the free loan calculator
How Loan Payments Work
Whether you’re buying a home, financing a car, or taking out a personal loan, understanding how monthly payments are calculated helps you budget and compare offers. Most loans use an amortization schedule where each payment covers both principal and interest.
The Monthly Payment Formula
For a fixed-rate loan, the monthly payment is calculated using:
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where:
M= monthly paymentP= principal (loan amount)r= monthly interest rate (annual rate / 12)n= total number of payments (years × 12)
Step-by-Step Example
For a $250,000 mortgage at 6.5% interest over 30 years:
P = 250,000
r = 6.5% / 12 = 0.065 / 12 = 0.005417
n = 30 × 12 = 360
M = 250,000 × [0.005417 × (1.005417)^360] / [(1.005417)^360 - 1]
M = 250,000 × [0.005417 × 6.9913] / [6.9913 - 1]
M = 250,000 × 0.03787 / 5.9913
M ≈ $1,580.17
Over 30 years, you’ll pay:
Total paid = $1,580.17 × 360 = $568,861
Total interest = $568,861 - $250,000 = $318,861
How Interest Rate Affects Payments
Small rate differences have a big impact over time. For a $300,000 loan over 30 years:
| Rate | Monthly Payment | Total Interest |
|---|---|---|
| 5.0% | $1,610 | $279,767 |
| 6.0% | $1,799 | $347,515 |
| 7.0% | $1,996 | $418,527 |
Each 1% increase adds roughly $200/month and $70,000 in total interest.
15-Year vs 30-Year Mortgage
For a $300,000 loan at 6.5%:
- 30-year:
$1,896/month— total interest$382,633 - 15-year:
$2,613/month— total interest$170,389
The 15-year option saves $212,244 in interest but costs $717 more per month.
Free Loan Payment Calculator
Calculate your monthly payment, total amount paid, and total interest for any loan.
©2026 Notes Calculator. All rights reserved.
Example
A $20,000 car loan at 5% for 5 years:
Monthly payment ≈ $377.42
Total paid = $377.42 × 60 = $22,645.48
Total interest = $22,645.48 - $20,000 = $2,645.48
Frequently Asked Questions
How is a monthly loan payment calculated?
Monthly loan payments for fixed-rate loans use the amortization formula: M = P x [r(1+r)^n] / [(1+r)^n - 1], where P is the principal, r is the monthly interest rate, and n is the total number of payments. Each payment covers both principal and interest, with early payments being mostly interest.
Is a 15-year or 30-year mortgage better?
A 15-year mortgage has higher monthly payments but saves significantly on total interest. A 30-year mortgage offers lower monthly payments, giving more cash flow flexibility. For a $300,000 loan at 6.5%, the 15-year option saves over $200,000 in interest but costs about $700 more per month.
How does interest rate affect my total cost?
Even small rate differences compound dramatically over time. On a $300,000 30-year mortgage, each 1% increase in interest rate adds roughly $200 per month and about $70,000 in total interest paid over the life of the loan. Shopping for the best rate is one of the highest-impact financial decisions you can make.
Planning your financial future? See how your savings grow with our compound interest calculator, or calculate your profit margins if you are running a business.
Compare Loans in Notes Calculator
Notes Calculator’s variables and large number notation make mortgage comparisons fast:
# Mortgage Comparison
principal = 250k
rate = 6.5%
// Monthly rate
monthly rate = rate / 12
// Total interest at different terms
30 year total = principal * monthly rate * 360
15 year total = principal * monthly rate * 180
// Compare rates
principal * 5% / 12 // at 5%
principal * 6.5% / 12 // at 6.5%
principal * 7% / 12 // at 7%
Type 250k instead of 250,000 for readability — Notes Calculator supports k (thousands), M (millions), and more. Use comments (//) to annotate each line, and headings (#) to separate different loan scenarios. Change principal or rate once and every calculation updates in real time.