How loan payments are calculated
Most personal loans, car loans and mortgages are amortising: you pay the same amount every month, and each payment covers that month's interest first, with the rest reducing the balance. The standard formula is
payment = P × r ÷ (1 − (1 + r)−n)
where P is the amount borrowed, r is the monthly interest rate (APR ÷ 12) and n is the number of monthly payments.
Why early payments are mostly interest
Interest is charged on the outstanding balance, which is highest at the start. That's why the schedule above shows more interest in year one than in the final year — and why extra payments early on save the most.
Frequently asked questions
Does a longer term save money?
A longer term lowers the monthly payment but almost always increases the total interest you pay.
Is APR the same as the interest rate?
APR includes most compulsory fees, so it's the better number for comparing offers. This calculator treats the rate you enter as a simple annual rate compounded monthly, which matches how most lenders quote repayments.
Results are estimates for planning. Your lender's figures may differ slightly.