Fixed-rate loans — car loans, personal loans, student loans — use the same amortization formula as mortgages:
M = P × [ r(1 + r)n ] / [ (1 + r)n − 1 ]
- M — the monthly payment;
- P — the amount you borrow;
- r — the monthly interest rate (annual rate ÷ 12);
- n — the total number of monthly payments.
Each payment is split between interest and principal. The interest portion is the outstanding balance multiplied by the monthly rate; whatever remains goes toward the principal. Early in the loan most of the payment is interest; with every month the balance shrinks and the principal share grows — that is what an amortization schedule shows row by row.
Two numbers tell you the real cost of a loan: the monthly payment and the total of all payments. A $20,000 loan at 7% for 5 years costs $396 a month — and $23,761 in total, so the borrowing itself costs $3,761.
Use the loan calculator to get the payment, the payoff date and the full amortization schedule for your own numbers.