How to Calculate Loan Payments: Monthly Cost and Total Interest
The equal-instalment loan formula, how term and rate change total cost, and what to check before you borrow.
Before borrowing, two questions matter most: how much will I pay each month, and how much will I have paid in total? You can work out both in advance.
The equal-instalment formula
Most consumer loans have a fixed monthly payment: payment = amount × r ÷ (1 − (1 + r)^−n). Here r is the monthly rate as a decimal and n is the number of months. For 100,000 at 0.6% per month over 24 months, r = 0.006 and the payment is about 4,486.
Total cost
Total repaid = payment × number of months. With a payment of 4,486 over 24 months you repay about 107,700, so interest costs about 7,700. Judging a loan by the monthly payment alone is misleading; always look at total interest too.
What happens when the term gets longer?
A longer term lowers the monthly payment but increases total interest. Stretching the same loan to 36 months makes each payment smaller, yet you pay noticeably more interest overall. The shortest term your budget allows is usually the cheapest.
Costs beyond interest
A calculator shows interest only. Real loans may also include:
- Taxes and fees that depend on the loan type
- Arrangement and valuation fees
- Life or property insurance
Lenders usually quote an annual percentage rate (APR); compare that figure when shopping around.
Before you decide
Make sure the payment fits comfortably in your monthly income and ask about early repayment terms. Use our loan calculator to try different amounts and terms side by side.