How to calculate a loan payment
A fixed-rate loan payment is the amount borrowed times the monthly rate, divided by one minus the discount factor for the number of payments. The total interest is all the payments added up minus the amount borrowed.
Skip the maths and use the loan calculator
The formula
Payment = P × r ÷ (1 − (1 + r)^−n). Total interest = payment × n − P.
Step by step
- Take the amount borrowed.
- Divide the annual rate by 12 for the monthly rate.
- Count the monthly payments in the term.
- Apply the formula, then multiply the payment by the number of payments to see the total cost.
Worked example
12,000 over 4 years at 7.5%
- Monthly rate = 0.075 ÷ 12 = 0.00625
- Payments = 4 × 12 = 48
- Payment = 12,000 × 0.00625 ÷ (1 − 1.00625^−48)
The payment is about 290.15 a month, and the total interest is about 1,927 over the term.