Loan Payment
Monthly payment for borrowed amount.
What does Loan Payment mean?
A loan payment is the periodic amount a borrower must pay to a lender to repay a loan over a specified time. It typically includes both principal repayment and interest. Understanding your monthly payment helps you budget effectively and compare loan offers from different lenders.
How to calculate Loan Payment
For annuity (fixed) payments, the formula is M = P × r(1+r)^n / ((1+r)^n − 1), where M is the monthly payment, P is the loan principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the total number of months. For linear (diminishing) payments, each month you pay a fixed principal portion (P ÷ n) plus interest on the remaining balance.
FAQ
With annuity payments, you pay the same amount every month — early payments are mostly interest, later ones are mostly principal. With linear payments, the principal portion is the same each month but the interest decreases, so your total monthly payment goes down over time. Linear payments result in less total interest paid.
Linear payments cost less in total interest because you repay principal faster. However, the initial monthly payments are higher. Annuity payments are easier to budget for since they stay the same. Choose based on whether you can afford higher payments initially.
A longer term lowers your monthly payment but increases the total interest paid significantly. For example, a $200,000 loan at 5% costs about $186,500 in interest over 30 years but only $53,000 over 15 years. Shorter terms save money overall.
Even small rate differences have a big impact. On a $200,000, 30-year loan, going from 5% to 6% increases the monthly payment by about $120 and adds over $43,000 in total interest. Always shop around for the best rate.
Most loans allow early repayment, though some may charge a prepayment penalty. Paying extra toward principal reduces total interest and shortens the loan term. Even small additional payments can save thousands over the life of the loan.
Related calculators
- Mortgage— Long-term home loan amortization.
- Compound Interest— Growth of money with reinvested interest.
- Simple Interest— Interest calculated only on principal.
- Break-Even— Point where revenue equals cost.