Shopping for a car loan, a mortgage, or a personal loan? The lender quotes you a monthly payment — but knowing how it's calculated helps you compare offers and spot the expensive ones.
What is a monthly loan payment?
It's the fixed amount you pay every month until the loan is fully repaid. Each payment covers part interest, part principal. Early payments are mostly interest; later ones are mostly principal.
The loan payment formula
Payment = P × r × (1+r)n / ((1+r)n − 1)
- P = loan amount (principal)
- r = monthly interest rate (annual APR ÷ 12 ÷ 100)
- n = number of monthly payments
Worked example
Auto loan of $25,000 at 7% APR for 5 years (60 months):
- Monthly rate r = 7 ÷ 12 ÷ 100 = 0.005833
- Payment = 25,000 × 0.005833 × (1.005833)60 / ((1.005833)60 − 1) ≈ $495.03/month
- Total paid ≈ $29,701.80 — so the loan costs you about $4,701.80 in interest.
3 tips before you sign
- Compare the total cost, not just the monthly payment. A longer term lowers the payment but raises total interest.
- Ask about origination fees and add-ons — they raise the real cost of the loan.
- Keep total debt payments under 36% of gross income — the classic rule of thumb lenders themselves use.
Skip the math — use the free calculator
Try our free Loan Payment Calculator: enter amount, rate and term to see your monthly payment, total interest and total cost instantly — no sign-up needed.
Want the spreadsheets behind the math? Browse our digital bundles — one payment, lifetime access.