Personal Finance · 5 min read
How to Calculate a Loan Payment
Level installments that amortize principal — and what they omit
An amortizing loan spreads principal and interest into equal period payments. This tutorial walks through the standard annuity formula, a $20,000 / 6.5% / 5-year monthly worked example, and a playground that stacks principal against total interest as you change term and rate. Figures are illustrative; fees and taxes are omitted.
Written by the My Calculator Stack editorial team. About our methods
These figures are illustrative. Origination fees, insurance, and taxes are omitted. This is not lending, tax, or financial advice.
1.What a loan payment is
A fixed installment loan charges interest on the remaining balance and applies the rest of each payment to principal. Early payments are mostly interest; later payments are mostly principal. The payment itself stays level when the rate and schedule are fixed. Origination fees, insurance, and taxes are not in this formula — they sit on top of the installment if a lender charges them.
2.The formula
Payment uses the standard annuity formula. Period rate i = annual rate / m, and N = years × m is the number of payments. Then p = P · i(1+i)^N / ((1+i)^N − 1). If i = 0, p is simply P/N. Total paid is p × N; total interest is that total minus principal. Monthly loans use m = 12. The same equation powers the loan calculator on this site.
\[ p = P\frac{i(1+i)^{N}}{(1+i)^{N}-1} \]
3.Worked example
Take a $20,000 loan at 6.5% annual for 5 years with monthly payments — the same defaults as the loan calculator. Period rate i = 0.065/12, and N = 60. The annuity formula gives p ≈ $391.32 per month. Total paid ≈ $23,479; interest is the remainder after subtracting principal, about $3,479. Stretching the term or raising the rate increases the interest share of that stack.
\[ p = 20000\frac{i(1+i)^{60}}{(1+i)^{60}-1}\approx 391.32 \]
4.Principal versus interest
Move term and rate (and principal if you want) to see the monthly payment update and the principal/interest stack resize. This is a teaching widget — no period-by-period amortization table, no extra fees, no full calculator chrome. Open the loan calculator for payment and totals, or the amortization calculator when you want the schedule.
Inline playground
Monthly payments · fees and taxes omitted
Payment per month
$391.32
Total paid $23,479.38 · interest $3,479.38
i = 0.065/12, N = 60 → p ≈ 391.32
Illustrative only — level monthly installments, no origination fees, insurance, or taxes.
Open the full loan calculator →5.Open the full calculator
The loan calculator uses the same annuity formula, the same $20,000 / 6.5% / 5-year monthly example, and the same limitation that fees and taxes are omitted. Browse other personal finance tools if you need a full amortization schedule, a mortgage, or compound interest next.
Try it yourself
Open the related calculator and put these formulas to work.