How a Loan Calculator Works
A loan calculator computes your fixed monthly payment based on three things: the amount you are borrowing (price minus your down payment), the annual interest rate, and the loan term. The math is the same for mortgages, auto loans, and personal loans — only the typical numbers change.
The Loan Payment Formula
M = P × r × (1 + r)n / ((1 + r)n − 1)
Where M is the monthly payment, P is the principal (price minus down payment), r is the monthly interest rate (APR ÷ 12 ÷ 100), and n is the number of months.
Why a Larger Down Payment Saves So Much
The down payment doesn't just lower your monthly payment — it dramatically reduces the total interest you pay over the life of the loan. On a $300,000 home at 6.5% over 30 years:
- 10% down ($30,000): ~$1,706/month, ~$344,000 in interest
- 20% down ($60,000): ~$1,517/month, ~$306,000 in interest
- 30% down ($90,000): ~$1,327/month, ~$268,000 in interest
That extra 10% down can save you tens of thousands of dollars over the life of the loan, in addition to letting you avoid PMI on most mortgages.
Mortgage vs Auto vs Personal Loans
While the math is identical, typical terms differ a lot:
- Mortgage: 15–30 year terms, rates often the lowest (currently 6–7% in the US)
- Auto loan: 3–7 year terms, rates 5–9% depending on credit
- Personal loan: 1–7 year terms, rates 6–25% (highest variability based on credit score)
Frequently Asked Questions
Does this calculator include taxes and insurance?
No — this shows principal and interest only (P&I). For mortgages, lenders often quote PITI (Principal, Interest, Taxes, Insurance), which adds 15–25% to the monthly figure depending on your location.
What's the difference between APR and interest rate?
The interest rate is what you pay on the loan principal each year. APR includes additional fees (origination, points) annualized into a single percentage. APR is always equal to or higher than the interest rate. Use APR for comparing loan offers; use the interest rate to calculate your monthly payment.
Can I make extra payments to pay off the loan faster?
Yes — most loans allow extra principal payments without penalty. Even adding $100 a month to a 30-year mortgage can shorten the loan by 4–5 years and save tens of thousands in interest.