Financing Cost Calculator
This calculator helps you estimate the monthly payment, total amount paid, and the total interest you will pay over the life of a loan based on the principal amount, annual interest rate, and the loan term in years.
Enter the loan details below to see a breakdown of the costs.
Enter Loan Details
Understanding Loan Costs
How Loan Payments Are Calculated (Amortization)
Most loans use a process called amortization, where each monthly payment is applied first to the interest owed for that month, and the remainder reduces the principal balance. Over time, as the principal decreases, less of your payment goes towards interest and more goes towards principal.
Monthly Payment Formula
The standard formula for calculating the fixed monthly payment (M) of an amortizing loan is:
M = P [ i(1 + i)ⁿ ] / [ (1 + i)ⁿ – 1]
P= Principal Loan Amounti= Monthly Interest Rate (Annual Rate / 100 / 12)n= Total Number of Payments (Loan Term in Years * 12)
This calculator uses this formula to find your estimated monthly payment.
Total Cost Breakdown
Once the monthly payment is known:
- Total Amount Paid = Monthly Payment × Total Number of Payments (n)
- Total Interest Paid = Total Amount Paid – Principal Loan Amount (P)
This shows you the true total cost of borrowing, which includes the original amount plus all the accumulated interest.
Financing Calculation Examples
Click on an example to see the details:
Example 1: Car Loan
Scenario: Buying a used car with a loan.
Inputs: Principal = $20,000, Annual Rate = 6%, Loan Term = 5 years.
Calculation:
- Monthly Rate (i) = (6 / 100) / 12 = 0.005
- Total Months (n) = 5 * 12 = 60
- M = 20000 * [0.005 * (1 + 0.005)⁶⁰] / [(1 + 0.005)⁶⁰ – 1]
- M ≈ 20000 * [0.005 * 1.34885] / [1.34885 – 1]
- M ≈ 20000 * 0.006744 / 0.34885 ≈ 386.66
- Total Paid = 386.66 * 60 = 23199.60
- Total Interest = 23199.60 - 20000 = 3199.60
Results: Monthly Payment: $386.66, Total Amount Paid: $23,199.60, Total Interest Paid: $3,199.60.
Example 2: Personal Loan
Scenario: Consolidating debt with a personal loan.
Inputs: Principal = $5,000, Annual Rate = 12%, Loan Term = 3 years.
Results (approx): Monthly Payment: $166.07, Total Amount Paid: $5,978.49, Total Interest Paid: $978.49.
Example 3: Mortgage (Simplified)
Scenario: Estimating payments for a simple mortgage (ignores taxes, insurance).
Inputs: Principal = $250,000, Annual Rate = 4%, Loan Term = 30 years.
Results (approx): Monthly Payment: $1,193.54, Total Amount Paid: $430,075.45, Total Interest Paid: $180,075.45.
Example 4: Short-Term Loan
Scenario: A quick loan for an emergency.
Inputs: Principal = $1,000, Annual Rate = 20%, Loan Term = 1 year.
Results (approx): Monthly Payment: $92.63, Total Amount Paid: $1,111.56, Total Interest Paid: $111.56.
Example 5: Student Loan (High Principal, Long Term)
Scenario: Estimating the cost of a large student loan.
Inputs: Principal = $50,000, Annual Rate = 6.8%, Loan Term = 10 years.
Results (approx): Monthly Payment: $575.75, Total Amount Paid: $69,090.17, Total Interest Paid: $19,090.17.
Example 6: 0% Financing Offer
Scenario: Buying an appliance with 0% store financing.
Inputs: Principal = $1,500, Annual Rate = 0%, Loan Term = 2 years.
Results: Monthly Payment: $62.50, Total Amount Paid: $1,500.00, Total Interest Paid: $0.00.
Example 7: Small Business Loan
Scenario: Loan for small business equipment.
Inputs: Principal = $30,000, Annual Rate = 8%, Loan Term = 7 years.
Results (approx): Monthly Payment: $467.40, Total Amount Paid: $39,261.55, Total Interest Paid: $9,261.55.
Example 8: Boat Loan
Scenario: Financing a recreational boat.
Inputs: Principal = $40,000, Annual Rate = 5.5%, Loan Term = 15 years.
Results (approx): Monthly Payment: $327.00, Total Amount Paid: $58,859.12, Total Interest Paid: $18,859.12.
Example 9: Refinancing Comparison
Scenario: Comparing a potential refinance rate.
Inputs: Principal = $100,000, Annual Rate = 3.5%, Loan Term = 10 years.
Results (approx): Monthly Payment: $988.61, Total Amount Paid: $118,633.86, Total Interest Paid: $18,633.86.
Example 10: High Rate, Short Term Payoff
Scenario: Quickly paying off a relatively high-interest debt.
Inputs: Principal = $2,500, Annual Rate = 18%, Loan Term = 2 years.
Results (approx): Monthly Payment: $124.86, Total Amount Paid: $2,996.74, Total Interest Paid: $496.74.
Frequently Asked Questions about Financing Costs
1. What does "amortizing loan" mean?
An amortizing loan is one where your regular payments (usually monthly) include both principal and interest, gradually paying off the loan over its term.
2. How is the Total Interest Paid calculated?
It's calculated by taking the Total Amount Paid (sum of all your monthly payments) and subtracting the original Principal Amount. This difference is the total cost of borrowing.
3. Does this calculator include extra fees like origination fees?
No, this calculator only calculates the cost based on the principal, interest rate, and term. It does not include any additional fees or charges that a lender might apply.
4. Is the Annual Interest Rate the same as APR?
Not always. APR (Annual Percentage Rate) often includes the interest rate plus certain fees and other costs of the loan, providing a more complete picture of the annual cost. This calculator uses the input as a simple annual interest rate for the core calculation.
5. Why does a longer loan term cost more in total interest?
While a longer term typically results in a lower monthly payment, you are paying interest on the remaining principal balance for a longer period, which accumulates to a higher total interest paid over the loan's life.
6. Why does a higher interest rate result in higher costs?
A higher interest rate means the lender charges a larger percentage of the outstanding principal as interest each month. This directly increases both your monthly payment and the total interest paid over the loan term.
7. Can I calculate the impact of making extra payments?
No, this basic calculator assumes you make only the standard calculated monthly payment. Making extra payments typically reduces the principal faster, leading to less total interest paid and potentially a shorter loan term, but this calculator does not model that scenario.
8. Can I use this calculator for any type of loan?
Yes, you can use it for most standard amortizing loans like mortgages, car loans, personal loans, or student loans. However, be aware it does not factor in variable rates, balloon payments, or other specific loan features.
9. What is the minimum loan term I can enter?
The calculator is set up to accept a minimum loan term of 1 year (12 months).
10. Can I enter 0% for the annual interest rate?
Yes, the calculator handles 0% interest rates correctly. In this case, your monthly payment is simply the principal divided by the total number of months, and the total interest paid will be $0.
