Enter the amount you want to borrow, the yearly interest rate and the length of the loan. You can give the term in years or in months, whichever is easier for you. If you are thinking about paying a little more than the minimum every month, type that extra amount in the last box. It is optional, so you can leave it empty.
After you press Calculate, the tool shows your regular monthly payment, the total interest you will pay and the full amount you will repay by the end. It also shows how large the interest is compared with the loan itself, which is a handy number when you are comparing offers from different lenders.
When you add an extra monthly payment, you will see how much sooner the loan ends and how much interest you avoid. Even a modest extra amount can take months off a loan. Run the numbers with a few different rates and terms before you sign anything, since a longer term lowers the payment but usually raises the total cost.
The monthly payment uses the fixed rate loan formula: payment = loan x r / (1 – (1 + r) raised to minus n), where r is the yearly rate divided by 1200 and n is the number of months. With a zero rate the payment is the loan divided by n.
Total repaid is the payment multiplied by n, and total interest is that figure minus the loan. For the extra payment, the calculator walks through the loan month by month. Each month the interest is the balance times r, the rest of the payment reduces the balance, and the process stops when the balance reaches zero.