💳 A step-by-step guide to understanding what you’ll owe each month
Thinking about getting a loan — for a car, a house, or even a personal purchase? One of the first things you probably want to know is:
How much will my monthly payment be?
The good news is that once you know a few key numbers, calculating your loan payment is actually pretty easy.
Table of Contents
🙋 What Is a Loan Payment?
A loan payment is the amount of money you pay each month to repay the loan. It typically includes:
- Principal – the original amount you borrowed
- Interest – the cost of borrowing the money
Some loans may also include fees, taxes, or insurance, but we’ll keep it simple here and focus on principal and interest.
⚙️ Loan Payment Calculator
Enter the Principal, Interest rate (%) and the total repayment term in years. The tool will calculate your monthly payments.
🧮 The Monthly Loan Payment Formula
Here’s the basic formula lenders use to calculate your monthly loan payment:
M = [P × r × (1 + r)^n] / [(1 + r)^n – 1]Where:
M = your monthly payment
P = loan amount (the principal)
r = monthly interest rate (annual rate ÷ 12)
n = total number of monthly payments
Don’t worry — you don’t have to solve this by hand. You can use the calculator or plug it into Excel. But let’s walk through an example anyway.
🔍 Example: $10,000 Loan at 6% Interest
Let’s say you borrow $10,000
Your interest rate is 6% annually
You’re repaying it over 5 years
Here’s what that looks like in the formula:
- P = 10,000
- r = 6% ÷ 12 = 0.005
- n = 5 years × 12 months = 60
Now plug those in:
M = [10,000 × 0.005 × (1 + 0.005)^60] ÷ [(1 + 0.005)^60 – 1]Your monthly payment comes out to about $193.33
That’s the amount you’d pay each month to fully repay the loan over 5 years.
📌 Quick Tips
- Use the loan calculator to skip the math
- Know whether your interest rate is fixed (stays the same) or variable (can change)
- The longer your loan term, the lower your monthly payment — but you’ll pay more in total interest
💵 Why It’s Useful to Know
Understanding how to calculate a loan payment helps you:
- Compare different loan offers
- Plan your monthly budget
- Avoid borrowing more than you can afford
- Be a more confident borrower
💡 Final Thoughts
Knowing how to calculate a loan payment is a powerful money skill. You’ll be able to spot good deals, avoid costly mistakes, and borrow smartly — whether it’s for a car, a home, or a personal project.