How to Calculate Monthly Loan Payments and Total Interest for Any Type of Loan

Whether you’re shopping for a car loan, comparing mortgage offers, or considering a personal loan, understanding how monthly payments and total interest are calculated helps you make informed financial decisions. The formula might look complex, but once you understand the components, you can compare any loan offer with confidence.

Use the Loan Calculator at Today Calculator to instantly compute your monthly payments, total interest, and amortization schedule for any loan amount, term, and interest rate.

The Loan Payment Formula

The standard formula for calculating monthly loan payments is:

M = P × [r(1+r)^n] / [(1+r)^n – 1]

Symbol	Meaning	Example Value
M	Monthly payment	What we’re solving for
P	Principal (loan amount)	$20,000
r	Monthly interest rate (annual rate / 12)	0.06/12 = 0.005
n	Total number of payments (years × 12)	5 × 12 = 60

Step-by-Step Example: $20,000 Car Loan at 6% for 5 Years

1. Convert annual rate to monthly: 6% / 12 = 0.5% = 0.005
2. Calculate total payments: 5 years × 12 = 60 payments
3. Apply formula: M = 20,000 × [0.005(1.005)^60] / [(1.005)^60 – 1]
4. Result: Monthly payment = $386.66
5. Total paid: $386.66 × 60 = $23,199.60
6. Total interest: $23,199.60 – $20,000 = $3,199.60

The Loan Calculator does all this math instantly. Just enter the loan amount, interest rate, and term, and you’ll get your exact monthly payment.

How Interest Rate Affects Your Payment

A small difference in interest rate can significantly impact your monthly payment and total interest over the life of the loan. Compare these scenarios for the same $20,000, 5-year loan:

Interest Rate	Monthly Payment	Total Interest
4%	$368.33	$2,099.80
6%	$386.66	$3,199.60
8%	$405.53	$4,331.80
10%	$424.94	$5,496.40

As you can see, a 6% difference in rate (4% vs 10%) nearly triples the total interest paid. Always shop around for the best rate before committing to a loan.

Loan Term: Shorter vs Longer

Longer terms mean lower monthly payments but much more interest paid overall. For a $20,000 loan at 6%:

Term	Monthly Payment	Total Interest
3 years	$608.44	$1,903.84
5 years	$386.66	$3,199.60
7 years	$292.40	$4,561.60

The 3-year term saves $2,657.76 in interest compared to the 7-year term, but the monthly payment is more than double. Choose the shortest term you can comfortably afford.

Run your own numbers with the Loan Calculator to find the sweet spot between affordable monthly payments and minimizing total interest.