Debt
Loan Calculator
Built and maintained by Chandranshu Kumar · Figures from the IRS, SSA, BLS and Freddie Mac
Balance over time
| Year | Balance left |
|---|---|
| 1 | $20,854 |
| 2 | $16,320 |
| 3 | $11,360 |
| 4 | $5,934 |
| 5 | $0 |
Every payment is the same, but early on most of it is interest. As the balance falls, more of each payment chips away at what you owe. Not financial advice.
How the loan payment is worked out
A fixed loan uses one amortization formula that sizes a single monthly payment so the balance reaches zero on the last month of the term. On a $25,000 loan at 9% over five years that payment is about $519, and it stays the same every month.
Each payment splits in two. The interest part is the monthly rate, here 9% divided by 12, times the balance you still owe. The rest of the payment is principal, the amount that actually lowers the balance. Because the balance is largest at the start, the interest share is largest at the start, so early payments knock off little principal.
As the balance falls, the interest charged on it falls too, so a bigger slice of the same payment goes to principal each month. By the end almost the whole payment is principal. Add up the interest across all sixty payments and this loan costs $6,138, for a total of $31,138 repaid on the $25,000 borrowed.
Common questions
How is a loan payment worked out?
A fixed loan spreads the balance and interest into equal monthly payments. At the start most of each payment is interest, and later more goes to the balance.
Does a longer term lower the payment?
Yes, but it raises the total interest. Spreading the same $25,000 over more years shrinks each monthly payment, and you make more of them, so more interest builds up. A shorter term costs more each month and less overall.
Can I pay a loan off early?
Most personal and auto loans let you pay extra with no penalty, and every extra dollar goes straight at the balance. That lowers the interest charged the next month and shortens the loan. Check your agreement for a prepayment penalty first. To compare several debts at once, use the debt payoff calculator.
What is the difference between APR and the interest rate?
The interest rate is the cost of borrowing the money. APR folds in the rate plus certain fees, so it usually sits a touch higher and is the fairer number for comparing offers. See the full method.