How loan payments are calculated
Most loans — personal loans, car loans, and many business loans — use an amortization schedule. Each monthly payment is the same size, but the mix of principal and interest within it changes over time. Early on, more of your payment goes toward interest because the outstanding balance is highest.
This calculator uses the standard amortization formula to give you a fixed monthly payment based on your loan amount, interest rate, and term, along with the total interest you'll pay over the life of the loan.
Tips for managing loan repayment
- Compare the total interest across different terms — a shorter term means higher monthly payments but significantly less interest overall.
- Check whether your lender allows extra repayments without penalty — even small additional payments toward principal can reduce total interest.
- Watch for fees (origination, late payment, prepayment) that aren't reflected in the headline interest rate.
Frequently asked questions
What is EMI?
EMI stands for Equated Monthly Installment — a fixed payment amount made by a borrower to a lender at a specified date each month, covering both principal and interest.
How is the monthly loan payment calculated?
The monthly payment is calculated using the loan amount, the monthly interest rate, and the total number of payments, using a standard amortization formula that ensures the loan is fully repaid by the end of the term.
Why is most of my early payments interest?
Loans are structured so that interest is calculated on the remaining balance each period. Since the balance is highest at the start, early payments are weighted more toward interest, with the proportion shifting toward principal over time.
Does extra repayment reduce total interest?
Yes. Paying extra toward the principal reduces the balance that interest is calculated on, which can significantly reduce total interest paid and shorten the loan term, depending on the lender's terms.