Loan Calculator
Calculate loan payments, interest rates, and repayment schedules
How to Use the Loan Calculator
- Enter the loan amount you need to borrow
- Input the annual interest rate offered by your lender
- Select the loan term (number of years)
- Add any down payment if applicable
- Include extra monthly payments to see payoff acceleration
- Review your monthly payment and total interest costs
What is a Loan?
A loan is a sum of money borrowed from a lender that must be repaid over time with interest. Loans can be used for various purposes including personal expenses, debt consolidation, home improvements, or major purchases.
Loan Payment Formula
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where M = Monthly Payment, P = Principal, r = Monthly Interest Rate, n = Number of Payments
Types of Loans
Personal Loans
Unsecured loans for various personal expenses, debt consolidation, or emergencies.
Interest Rate: 6-36% APR
Auto Loans
Secured loans specifically for purchasing vehicles, with the car as collateral.
Interest Rate: 3-15% APR
Home Equity Loans
Secured loans using your home's equity as collateral for large expenses.
Interest Rate: 5-12% APR
Student Loans
Educational loans with favorable terms and potential deferment options.
Interest Rate: 3-11% APR
Business Loans
Financing for business operations, equipment, or expansion purposes.
Interest Rate: 4-25% APR
Payday Loans
Short-term, high-cost loans typically due on next payday. Use with extreme caution.
Interest Rate: 300-500%+ APR
Amazing Loan Facts
Ancient Origins
The concept of lending with interest dates back over 4,000 years to ancient Mesopotamia.
Credit Score Impact
A 100-point difference in credit score can mean tens of thousands in extra interest over a loan's lifetime.
Compound Effect
Making one extra payment per year can reduce a 30-year loan term by 4-6 years.
Interest Calculation
Most loans calculate interest daily, not monthly, which affects the actual amount you pay.
Debt-to-Income Ratio
Lenders typically prefer borrowers with debt-to-income ratios below 36% for optimal loan terms.
Early Payment Benefits
Even one extra payment per year toward principal can save 20-30% of total interest costs.
Smart Loan Tips
Check Your Credit Score First
Know your credit score before applying to understand what rates you qualify for and identify areas for improvement.
Compare Multiple Lenders
Shop around with at least 3-5 lenders to find the best rates and terms for your situation.
Consider Total Cost, Not Just Monthly Payment
Focus on the total amount you'll pay over the loan's lifetime, not just the monthly payment amount.
Read the Fine Print
Understand all fees, prepayment penalties, and terms before signing any loan agreement.
Avoid Borrowing More Than Needed
Only borrow what you actually need to minimize interest costs and monthly payment obligations.
Consider Automatic Payments
Many lenders offer rate discounts (0.25-0.5%) for setting up automatic monthly payments.
Historical Interest Rates
1980s Peak (1979-1982)
Rate: 15-21% Prime Rate
Highest interest rates in modern history due to inflation control measures by Federal Reserve.
2000s Average (2000-2007)
Rate: 4-8% Prime Rate
Moderate rates during economic expansion, before the 2008 financial crisis.
2010s Low Rates (2010-2018)
Rate: 1-4% Prime Rate
Extended period of low rates to stimulate economic recovery post-recession.
2020-2021 Record Lows
Rate: 0.25-2% Prime Rate
Historic low rates during COVID-19 pandemic to support economic stability.
2022-2024 Rise
Rate: 3-8% Prime Rate
Rapid rate increases to combat post-pandemic inflation, affecting all loan types.
Loan Repayment Strategies
Different approaches to paying off loans can save significant money and time. Choose the strategy that best fits your financial situation.
Extra Principal Payments
Add extra money toward principal each month to reduce total interest and loan term.
Best For: Those with extra income who want to save on interest costs.
Debt Avalanche Method
Pay minimums on all loans, put extra toward highest interest rate loan first.
Best For: Mathematically optimal approach to minimize total interest paid.
Debt Snowball Method
Pay minimums on all loans, put extra toward smallest balance loan first.
Best For: Those who need psychological wins and motivation to continue.
Refinancing
Replace existing loan with new loan at better terms or lower interest rate.
Best For: Those with improved credit scores or when market rates have dropped.
Bi-weekly Payments
Split monthly payment in half and pay every two weeks (26 payments = 13 monthly payments).
Best For: Those paid bi-weekly who want automatic acceleration without extra effort.
Loan Consolidation
Combine multiple loans into single loan, potentially with better terms.
Best For: Simplifying multiple payments or securing better overall rate.
Loan Action Plans
Comprehensive strategies to optimize your borrowing experience and save money over the loan lifetime.
Before Borrowing Action Plan
Immediate Steps
- Check your credit score and credit report
- Calculate how much you can afford to borrow
- Research different lenders and loan types
Short Term (1-2 weeks)
- Get quotes from 3-5 different lenders
- Compare APRs, not just interest rates
- Read loan terms and conditions carefully
Long Term (Before closing)
- Improve credit score if needed
- Save for any required down payment
- Set up automatic payments for rate discounts
During Repayment Action Plan
Immediate Steps
- Set up automatic payments to avoid late fees
- Track payments and remaining balance
- Review loan statements for errors
Short Term (First year)
- Make extra principal payments when possible
- Monitor interest rates for refinancing opportunities
- Build emergency fund to avoid payment issues
Long Term (Life of loan)
- Regularly check for refinancing opportunities
- Apply windfalls toward principal reduction
- Consider early payoff when financially beneficial
Loan Myths vs Reality
Myth: Shopping for loans hurts your credit score
Reality: Multiple loan inquiries within 14-45 days count as single inquiry for credit scoring purposes.
Myth: You should always take the longest term to lower payments
Reality: Longer terms mean more total interest paid, sometimes doubling the loan cost.
Myth: Paying off loans early always saves money
Reality: Consider opportunity cost and prepayment penalties; sometimes investing extra money yields better returns.
Myth: Banks always offer the best rates
Reality: Credit unions, online lenders, and peer-to-peer platforms often offer competitive or better rates.
Frequently Asked Questions
What's the difference between APR and interest rate?
Interest rate is the cost of borrowing, while APR includes the interest rate plus fees and gives you the true cost of the loan.
Can I pay off my loan early?
Most loans allow early payoff, but check for prepayment penalties. Paying early saves interest but consider opportunity cost.
How much can I afford to borrow?
Generally, total debt payments shouldn't exceed 36% of gross monthly income, including the new loan payment.
Should I choose a fixed or variable rate?
Fixed rates provide payment certainty, while variable rates may start lower but can increase over time.
What credit score do I need for a good rate?
Generally, 700+ gets the best rates, 650-699 gets good rates, and below 650 may face higher rates or require collateral.
How do I improve my chances of loan approval?
Improve credit score, lower debt-to-income ratio, provide steady income proof, and consider a co-signer if needed.
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