How to Calculate Monthly Payments on Any Loan
Every fixed-rate loan — car, personal, mortgage — uses the same formula to set its monthly payment. Learn it once and you can price any loan in minutes.
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The Universal Formula
P = loan amount, r = monthly interest rate (annual ÷ 12, as a decimal), n = number of payments. The formula comes from geometric series: it spreads the principal so that every payment covers the interest due and reduces the balance to exactly zero at payment n.
Worked Example: Car Loan
A $25,000 car loan at 6% for 60 months. r = 0.06 ÷ 12 = 0.005, n = 60. M = 25,000 × 0.005 ÷ (1 − 1.005^−60) ≈ $483.32. Total paid ≈ $28,999, so interest ≈ $3,999.
Worked Example: Mortgage
A $300,000 mortgage at 6.5% for 30 years. r = 0.0054167, n = 360. M ≈ $1,896.20. Over 360 payments the total is ≈ $682,632 — meaning $382,632 of interest. That is the real cost of the rate.
Zero-Rate Shortcut and Quick Checks
If the rate is 0%, the payment is simply P ÷ n. At very low rates the formula still applies but the interest portion is tiny. A quick sanity check for any loan: the monthly payment should be close to P ÷ n plus a bit for interest — if your quoted payment is far from that, re-check the numbers.
Use the Tool
The loan calculator and mortgage calculator apply this formula instantly, with amortization tables showing the principal/interest split of every payment.
Article FAQ
What is the monthly payment formula?
M = P × r / (1 − (1 + r)^−n), with r the monthly rate and n the total payments.
How much is the payment on a $25,000 car loan?
At 6% over 60 months it is about $483/month — the calculator gives the exact figure for your rate and term.
Does the payment change over time?
For a fixed-rate loan, no — the payment is constant. The split between interest and principal is what changes.