How the loan calculator works
Most consumer loans — car loans, personal loans, student loans — are amortizing: you pay the same amount every month, and that amount is set so the balance reaches exactly zero on the last payment. Each payment first covers the interest that built up on the balance that month, and the rest reduces the principal.
The calculator works in both directions. In Monthly payment mode it takes a loan amount and finds the payment. In How much I can borrow mode it starts from a payment you can afford and finds the largest loan that payment would repay at the same rate and term.
The formula
With loan amount P, monthly rate r = annual rate ÷ 12 and n monthly payments:
Payment M = P × r / (1 − (1 + r)^−n) Amount P = M × (1 − (1 + r)^−n) / r Total interest = M × n − P
If the rate is 0%, the payment is simply P ÷ n.
Worked example
Payment: $20,000 at 7.5% for 5 years. r = 0.075 / 12 = 0.00625 and n = 60. (1.00625)^−60 ≈ 0.68830, so M = 20,000 × 0.00625 / 0.31170 ≈ $400.76. Sixty payments total $24,045.54, of which $4,045.54 is interest.
Borrowing power: if $450 a month is your limit at the same rate and term, P = 450 × 0.31170 / 0.00625 ≈ $22,457.
Assumptions and limitations
- Fixed rate, monthly payments, interest charged monthly on the remaining balance. Daily-simple-interest loans (common for auto loans) come out within a few dollars if you always pay on the due date.
- Fees, insurance add-ons and prepayment penalties aren't included. If an origination fee is deducted from the proceeds, you receive less than the loan amount while still repaying all of it.
- Interest-only, balloon and variable-rate loans need a different calculation.
Background: Consumer Financial Protection Bureau, Interest rate vs. APR.
Frequently asked questions
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. APR (annual percentage rate) also folds in most lender fees, such as origination charges, so it is usually a little higher. To compare offers, use APR; to calculate the payment on the amount you actually receive, use the interest rate, as this calculator does.
How does a longer term change the loan?
Stretching the same loan over more months lowers each payment but increases total interest, because the balance stays higher for longer. On a $20,000 loan at 7.5%, going from 5 to 7 years cuts the payment by about $94 a month but adds roughly $1,720 in interest.
Can I use this for a car loan or personal loan?
Yes. Auto loans, personal loans and most student loans are fixed-rate installment loans that follow the same formula. For a car, enter the price minus your down payment and trade-in as the loan amount, and remember sales tax and fees if they are financed.
What does "how much can I borrow" assume?
It assumes the payment you enter covers principal and interest only, at a fixed rate, for the full term. Lenders also look at your debt-to-income ratio and credit, so the amount they approve may be lower than what the payment can mathematically repay.
Is interest really front-loaded?
Yes. Each month's interest is charged on the current balance, so the first payments are mostly interest and later payments are mostly principal. The amortization calculator shows the month-by-month split.
CalcNest results are estimates based on the inputs and assumptions above, not financial, tax or lending advice. A lender's official Loan Estimate or your account statement is the final word.