Before you get a loan, it’s important to know how much debt you can take on. Our simplified loan payment calculator can help you determine what your monthly payment could be including the principal amount and interest charges. To use the calculator, input the principal balance of your loan, the interest rate and the loan length.
Having an idea of your monthly payment can help when you’re putting together a budget. You might find that you have enough money left over to make extra payments or even develop a plan to get ahead of your debt.
How do you calculate a loan payment?
The Bankrate loan payment calculator breaks down your principal balance by month and applies the interest rate you provide. Because this is a simple loan payment calculator, we cover amortization behind the scenes. If you would prefer a loan payment calculator that delves into the granular details (such as amortization), use our more robust calculator.
In the context of a loan, amortization is when you pay off a debt on a regular, fixed schedule. Often, within the first few years, the bulk of your monthly payments will go toward interest. For example, if you have an auto loan with a monthly payment of $500, your first month’s payment might break down into $350 toward interest and $150 toward the principal.
Types of loans
There are loans offered for nearly every legal purpose by a variety of lenders. When considering the type that's best for you, it's important to compare each option to make sure the loan will benefit you and your finances down the road.
- Auto loans are loans intended to help finance a vehicle. Similar to personal loans, auto loans allow you to borrow a lump sum and pay it back over a set repayment period with interest. Auto loans are secured loans, meaning that the eligibility requirements are less stringent than unsecured loans, but the vehicle is put up as collateral so if you fail to make payments, you could lose your vehicle. Before applying, shop around to find the best rates and repayment terms to make sure the payments reasonably fit into your budget.
- Home equity loans and home equity lines of credit are borrowed against the amount of equity you've built up in your home (the value of your home minus the amount you've paid down). These loans are secured and use your house as collateral, so you do run the risk of losing your home if you fail to make the payments. However, they typically have better interest rates and terms than other loan products.
- Personal loans are sums of money you can borrow from a bank, credit union or online lender that can be used for virtually any purpose. These loans have fixed interest rates and repayment terms that typically range between 2 to 5 years. If you are in the market for a personal loan, compare top lenders to find the one with the best rate for your credit score.
- Student loans are loans specifically for educational purposes. There are both federal student loans and private student loans. Federal student loans are generally better because they come with borrower protection and have standardized deferment and forbearance periods. If you are having trouble qualifying for a federal loan, compare terms and rates on private student loans before choosing a lender, as these can vary widely.
Secured vs unsecured loans
Loans come in secured and unsecured options.Secured loans require you to put up an asset as collateral. This is typically something like a house or vehicle. These loans involve a great deal of risk since you could lose your asset if you do not pay the loan back. However, because the lender is taking on less risk, these loans do tend to come with lower interest rates and better terms over all. Home equity loans and auto loans are typically secured loans.
An unsecured loan does not require collateral, making it a safer option, especially if you have good credit and can qualify for the best interest rates. These loans tend to have stricter borrowing requirements, lower borrowing limits and higher interest rates. Personal loans and student loans are typically unsecured loans.
APR vs. interest rates
The interest rate is the annual cost of a loan to its borrower, expressed as a percentage of the principal borrowed. The annual percentage rate (APR) of a loan is slightly different, but more closely reflects actual annual costs. The APR includes the interest rate as well as fees and any other costs (i.e., closing costs or discount points), amortized on an annual basis.
Loan basics
Before you take out a loan, you should be familiar with vocabulary terms used by lenders:
Principal
The principal is the overall amount of money being borrowed. You typically receive this money as a lump sum and then begin paying it back on a monthly basis.
Interest
The interest rate is the rate at which the amount of money owed increases. It is typically expressed as an Annual Percentage Rate (APR) and incorporates any fees charged by the lender.
Term
The loan term is the amount of time that you have to pay off your loan. The longer your loan term is, the lower your monthly payments will be. However, taking a longer repayment period does increase the overall interest that you pay.
Additional loan payment calculators
In addition to this simple loan payment calculator, we also offer tools for helping you determine your monthly mortgage, auto and debt consolidation payments.
- Mortgage Calculator
- Auto Loan Calculator
- Debt Consolidation Calculator
I am a financial expert with a deep understanding of loan calculations, interest rates, and various types of loans. My expertise is based on years of experience in the financial industry, analyzing market trends, and helping individuals make informed decisions about their finances.
Now, let's delve into the concepts mentioned in the article you provided:
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Loan Payment Calculator: The article introduces a simplified loan payment calculator that helps individuals determine their monthly payment, including the principal amount and interest charges. This tool is crucial for budgeting and planning.
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Amortization: The Bankrate loan payment calculator covers amortization behind the scenes. Amortization is the process of paying off a debt on a regular, fixed schedule. In the early years, a significant portion of monthly payments goes toward interest, gradually shifting towards the principal over time.
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Types of Loans: The article mentions various types of loans, including:
- Auto Loans: Used to finance vehicles. They are secured loans with the vehicle as collateral.
- Home Equity Loans and Lines of Credit: Borrowed against the equity in your home, using it as collateral.
- Personal Loans: Unsecured loans for various purposes, with fixed interest rates and repayment terms.
- Student Loans: Specifically for educational purposes, with federal and private options.
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Secured vs. Unsecured Loans: Loans can be secured (collateral required, lower risk, lower interest rates) or unsecured (no collateral, safer for good credit, higher interest rates). Auto loans and home equity loans are examples of secured loans, while personal loans and student loans are typically unsecured.
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APR vs. Interest Rates: The article explains the difference between interest rates and annual percentage rates (APR). While interest rates represent the annual cost of a loan, APR includes additional costs like fees and is a more accurate reflection of overall annual costs.
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Loan Basics: Important terms borrowers should be familiar with:
- Principal: The total amount borrowed.
- Interest: The rate at which the owed amount increases.
- Term: The duration to repay the loan, impacting monthly payments and overall interest.
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Additional Loan Payment Calculators: The article mentions other calculators for specific purposes, including mortgage, auto loans, and debt consolidation.
Understanding these concepts is crucial for anyone considering a loan, as it empowers them to make informed decisions aligned with their financial goals. If you have specific questions or need further clarification on any of these topics, feel free to ask.
