- Interest rate—the annual cost of borrowing the money in percentage form. Typically given by lender as interest rate or rate.
- APR—the interest rate with fees included, such as origination fee, points, discount, credits, closing costs.
- Loaned fees—the fees to be rolled into the loan (increases the total loan amount).
- Upfront fees—the fees to be paid upfront by the borrower without being rolled into the loan. Use a negative value if a discount or credits are involved.
While a loan can take on various forms and have numerous payback options, the most common loan type is an amortized loan with a monthly payback schedule; examples include mortgages, auto loans, personal loans, small business loans, student loans, and home equity loans, among others. These are what this loan calculator is designed for.
This loan calculator computes the repayment, interest, and amortization schedule of an amortized loan with a monthly payback schedule. If fees are not provided, it works as a plain loan amortization calculator. If fees are provided, it can also calculate APR from interest rate or interest rate from APR. In addition, it can compare two different loans side-by-side with different rates, terms, and fees. When comparing two loans, APR is the indicator revealing the true cost of the loan with fees included. To use the calculator, please fill in the relevant fields and select either interest rate or APR, then click the "Calculate" button.
What is a Loan?
A loan is a kind of debt where one party (the lender) lends money to another party (the borrower). Under a loan agreement, the borrower agrees to repay the loan – plus interest – over a set schedule. The lender may also charge extra fees that can be paid upfront or rolled into the loan.
Some loans, such as personal loans or mortgages, are issued in lump sums to cover a specific bill. Others, like credit cards, are "revolving" credit lines that can be borrowed from and repaid again and again. (Our Loan Calculator deals with lump-sum loans.)
Types of loans
Loans come in two basic types: secured and unsecured.
Secured loans, like mortgages or auto loans, often come with better interest rates and lower qualification hurdles. They're "secured" by putting up an expensive item (like your house or car) as collateral. Securing your loan gives the lender the right to repossess your property if you fail to make your payments.
Unsecured loans, like many personal loans or credit cards, don't require collateral. Since this makes them riskier for lenders, they're often more expensive and potentially harder to qualify for. However, you don't risk losing your assets if you can't pay up.
Regardless of type, most loans share a similar set of characteristics. The most important of these include the:
- Lender: the entity (person or bank) that examines a borrower's risk level and lends the funds
- Borrower: the entity (person or business) that borrows money
- Principal: The original amount of money borrowed upfront
- Loan term: The length of time (usually in months or years) you have to repay the loan
- Interest rate: A number (usually a percentage) that represents your cost to borrow the loan
- APR: The cost to borrow money calculated as your interest rate plus additional fees or charges
- Loan payments: The amount of money you have to repay periodically in a given period of time
Understanding Amortized Loans
An amortized loan is a kind of loan that splits fixed payments between interest and the loan principal. These loans are common in consumer lending, such as auto and mortgage loans.
Amortized loan payments first go toward any accrued interest expenses for the given period. Then, the remainder of the payment pays down the principal.
Near the beginning of an amortized loan term, a larger portion of the payment goes towards interest. But as you reduce your principal, you lower the balance used to calculate interest. Over time, the interest portion of your payment decreases while the portion that goes towards the principal increases. However, the size of the actual payment usually remains constant for the duration of the loan term.
Amortized Loan Example
Imagine you take out a $400,000, 30-year mortgage at 5% interest with no fees or down payment. Plugging these numbers into the calculator, we can see how the loan amortizes over time on a monthly schedule*:
|Month||Principal Portion||Interest Portion||Remaining Balance|
*To view a monthly schedule in the calculator, simply toggle from "Yearly" to "Monthly" above the table results.
While the size of the loan payment never changes ($2,147.29 per month), the amounts attributed to principal and interest does. Though the early months frontload interest, by the end of the mortgage, the interest portion drops near zero.
Interest Rates vs. APR
It's difficult to understand loans without knowing the difference between your interest rate and APR. While your lender is required to show you both in the U.S., they're not exactly the same thing.
What is an Interest Rate?
In simple terms, your interest rate reflects the cost to borrow money. It's usually set at a percentage of the principal balance (say, 5%). High-rate loans generally have higher monthly payments or take longer to repay than low-rate loans.
There are two basic kinds of interest: simple and compound.
Simple interest is calculated only on the loan's principal. A few auto loans, personal loans, and some mortgages may charge simple interest.
Compound interest is when you pay interest on top of interest. That means that any interest charges are added to your principal. (This can happen daily, weekly, monthly, or yearly.) Then, the next period's interest is charged off the higher sum of your principal plus last period's interest.
You can find compound interest calculated on nearly all credit cards, personal and student loans, and mortgages. Try our compound interest calculator to compute potential earnings.
What is APR?
Your APR, or annual percentage rate, reflects the annual cost of borrowing money plus fees.
Like interest rates, your APR is expressed as a percentage. However, it's often higher than your interest rate, as it also considers fees like:
- Loan application or origination costs
- Mortgage insurance, closing costs, or discount points
- Prepaid interest charges
When comparing loans, it's wise to compare APRs, as they paint a fuller picture of your actual borrowing costs. Bear in mind however, that your monthly payments are calculated using your interest rate only – not your APR.
Loan Fees and Credits
As noted above, your lender may tack borrowing costs onto your loan. Possible costs include origination, servicing, or late payment fees.
In particular, mortgages may include closing costs, private mortgage insurance, discount points, and more. Discount points are upfront fees, each point usually worth 1% of your mortgage, that reduce your interest rate (~0.25% per point).
With some loans, you can roll these added borrowing costs into your balance. Doing so means that you can reduce the price of your loan upfront. On the other hand, because you're borrowing this money, too, you'll have to pay interest on your upfront "savings."
You may also be able to qualify for certain lender credits (usually on mortgages). With a credit, your lender offers to offset some of the upfront borrowing costs. However, they usually charge a higher interest rate in exchange for your upfront savings. The more lender credits you receive, the higher your interest rate soars.
How to Use Our Loan Calculator
Loans can take various forms with multiple repayment options. This calculator is designed to reflect regular or amortized loans with monthly payback schedules at fixed interest rates.
To use the calculator, you'll need the following values:
- The loan amount
- The loan term
- Your interest rate or APR (you can use either)
- Any loaned fees (these are fees that will be rolled into the loan and increase your principal)
- Any upfront fees (these are fees that you pay upfront; if you receive a discount or credits, use a negative value)
You can use these values to view your loan's total cost and amortization breakdown. You can also compare two loans side-by-side to examine how each loan's rates, terms, and fees impact your finances.
Once you have these values, using the Loan Calculator is simple! Just plug in the appropriate numbers, choose whether you're using an interest rate or APR, and click "Calculate."