How do you calculate a loan payment?

The Bankrate loan payment calculator breaks down your principal balance by month and applies the interest rate you provide. Because this is a simple loan payment calculator, we cover amortization behind the scenes. If you would prefer a loan payment calculator that delves into the granular details (such as amortization), use our more robust calculator.

In the context of a loan, amortization is when you pay off a debt on a regular, fixed schedule. Often, within the first few years, the bulk of your monthly payments will go toward interest. For example, if you have an auto loan with a monthly payment of $500, your first month’s payment might break down into $350 toward interest and $150 toward the principal.

Types of Loans

There are loans offered for nearly every legal purpose by a variety of lenders. When considering the type that's best for you, it's important to compare each option to make sure the loan will benefit you and your finances down the road.

• Auto loans are loans intended to help finance a vehicle. Similar to personal loans, auto loans allow you to borrow a lump sum and pay it back over a set repayment period with interest. Auto loans are secured loans, meaning that the eligibility requirements are less stringent than unsecured loans, but the vehicle is put up as collateral so if you fail to make payments, you could lose your vehicle. Before applying, shop around to find the best rates and repayment terms to make sure the payments reasonably fit into your budget.
• Home equity loans and home equity lines of credit are borrowed against the amount of equity you've built up in your home (the value of your home minus the amount you've paid down). These loans are secured and use your house as collateral, so you do run the risk of losing your home if you fail to make the payments. However, they typically have better interest rates and terms than other loan products.
• Personal loans are sums of money you can borrow from a bank, credit union or online lender that can be used for virtually any purpose. These loans have fixed interest rates and repayment terms that typically range between 2 to 5 years. If you are in the market for a personal loan, compare top lenders to find the one with the best rate for your credit score.
• Student loans are loans specifically for educational purposes. There are both federal student loans and private student loans. Federal student loans are generally better because they come with borrower protection and have standardized deferment and forbearance periods. If you are having trouble qualifying for a federal loan, compare terms and rates on private student loans before choosing a lender, as these can vary widely.

Secured vs unsecured loans

Loans come in secured and unsecured options. Secured loans require you to put up an asset as collateral. This is typically something like a house or vehicle. These loans involve a great deal of risk since you could lose your asset if you do not pay the loan back. However, because the lender is taking on less risk, these loans do tend to come with lower interest rates and better terms over all. Home equity loans and auto loans are typically secured loans.

An unsecured loan does not require collateral, making it a safer option, especially if you have good credit and can qualify for the best interest rates. These loans tend to have stricter borrowing requirements, lower borrowing limits and higher interest rates. Personal loans and student loans are typically unsecured loans.

APR vs. interest rates

Before you take out a loan, you should be familiar with vocabulary terms used by lenders:

Principal
‍The principal is the overall amount of money being borrowed. You typically receive this money as a lump sum and then begin paying it back on a monthly basis.

Interest
‍The interest rate is the rate at which the amount of money owed increases. It is typically expressed as an Annual Percentage Rate (APR) and incorporates any fees charged by the lender.

Term
The loan term is the amount of time that you have to pay off your loan. The longer your loan term is, the lower your monthly payments will be. However, taking a longer repayment period does increase the overall interest that you pay.