Why does most of my early payment go toward interest?

Because interest is charged on the outstanding balance. Early in the loan, the balance is highest, so interest takes a larger share of each payment. As the principal falls, each payment covers more principal and less interest. The amortization schedule below shows this shift month by month.

Does making extra payments actually save money?

Yes, significantly. Extra payments reduce the principal faster, which reduces the balance on which interest is charged. On a 30-year mortgage, even one extra payment per year can cut 4–5 years off the term and save tens of thousands in interest.

What is the difference between APR and interest rate?

The interest rate is the annual cost of borrowing the principal only. APR (Annual Percentage Rate) includes the interest rate plus fees — origination fees, broker fees, and other charges — expressed as a yearly rate. APR is the more complete comparison tool when evaluating loan offers.

How does loan term length affect the total cost?

A longer term means lower monthly payments but significantly more total interest paid. A shorter term means higher payments but less interest overall. For example, a $20,000 loan at 6% over 5 years costs $2,933 in total interest; over 10 years the same loan costs $6,645.

Finance

Loan Calculator

Calculate your monthly repayment for any loan — personal, car, student, or home — and see exactly how much interest you will pay in total. Expand the amortization schedule to track where every payment goes.

Loan amount

Annual interest rate (%)

Loan term

Term unit

Monthly payment

—

Total repaid—

Total interest—

Interest as % of loan—

Understanding your monthly payment

Every monthly repayment on a standard amortizing loan covers two things: interest on the outstanding balance, and a portion of the principal. The total payment stays the same each month, but the split between interest and principal changes. Early payments are interest-heavy; later payments are principal-heavy. This is called amortization.

The amortization schedule below the calculator shows exactly how this plays out for your loan — which is useful both for financial planning and for identifying when you will have meaningful equity in an asset like a car or property.

The repayment formula

M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]

M is the monthly payment, P is the principal, r is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments. This formula assumes a fixed interest rate and equal payments throughout the term.

A worked example

A $25,000 car loan at 6.5% interest over 5 years (60 months). The monthly rate is 6.5% ÷ 12 = 0.5417%.

M = 25,000 × [0.005417 × (1.005417)^60] ÷ [(1.005417)^60 − 1] = $489.15

Total repaid: $29,349. Total interest: $4,349 — which is 17.4% of the original loan. Shortening the term to 3 years raises the payment to $769 per month but cuts total interest to $2,683.

Common questions

Monthly payment M = P × [r(1+r)^n] ÷ [(1+r)^n − 1], where P is the loan principal, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments.
Because interest is charged on the outstanding balance. Early in the loan, the balance is highest, so interest takes a larger share of each payment. As the principal falls, each payment covers more principal and less interest. The amortization schedule below shows this shift month by month.
Yes, significantly. Extra payments reduce the principal faster, which reduces the balance on which interest is charged. On a 30-year mortgage, even one extra payment per year can cut 4–5 years off the term and save tens of thousands in interest.
The interest rate is the annual cost of borrowing the principal only. APR (Annual Percentage Rate) includes the interest rate plus fees — origination fees, broker fees, and other charges — expressed as a yearly rate. APR is the more complete comparison tool when evaluating loan offers.
A longer term means lower monthly payments but significantly more total interest paid. A shorter term means higher payments but less interest overall. For example, a $20,000 loan at 6% over 5 years costs $2,933 in total interest; over 10 years the same loan costs $6,645.