How to Calculate Monthly Loan Payments
August 22, 2026 · 5 min read
Whether you're buying a home, financing a car, or taking out a personal loan, understanding how monthly payments are calculated helps you make smarter financial decisions. Here's how the math works — plus a free calculator to run the numbers instantly.
The Loan Payment Formula
Fixed-rate loans use the standard amortization formula:
Where M is the monthly payment, P is the loan principal (amount borrowed), r is the monthly interest rate (annual rate ÷ 12), and n is the total number of payments (years × 12).
Example: $250,000 Mortgage at 6.5%
Principal: $250,000
Rate: 6.5% annual → 0.5417% monthly
Term: 30 years → 360 payments
Monthly Payment: $1,580.17
Total Interest Paid: $318,861
Total Amount Paid: $568,861
That means you'll pay more in interest ($318,861) than the original loan amount ($250,000) over 30 years. This is why even small rate differences matter enormously over the life of a loan.
How Amortization Works
In the early years of a loan, most of your monthly payment goes toward interest. Over time, the balance shifts and more goes toward paying down the principal. This is why paying extra toward principal in the early years can save you tens of thousands of dollars in interest.
Tips to Reduce Your Total Cost
Make extra payments. Even $100/month extra on a $250,000 mortgage can save you over $50,000 in interest and shorten your loan by 5+ years.
Choose a shorter term. A 15-year mortgage has higher monthly payments but dramatically lower total interest. On $250,000 at 6.5%, you'd save about $200,000 in total interest compared to a 30-year term.
Shop for rates. A 0.5% lower rate on a $250,000 loan saves roughly $30,000 over 30 years.
Calculate Your Loan Payment
Use our free Loan Calculator to plug in your numbers and see the monthly payment, total interest, and full amortization schedule.
Open Loan Calculator →Planning an investment instead? Check our ROI Calculator to compare returns across different opportunities.