How to use the loan payment calculator
- 1Enter the loan amount: what you borrow after any deposit, trade-in or grant.
- 2Enter the annual interest rate from the offer. Use 0 for an interest-free deal.
- 3Choose whether to enter the term in years or months, then type the length of the loan.
- 4Pick how often you pay: monthly, every two weeks or weekly.
- 5Read your payment, total interest and total paid, then scroll to the schedule to see every payment or a yearly summary.
How a loan payment is worked out
Most business loans, equipment loans and vehicle loans are amortizing: you pay the same amount every period, and over the term that amount pays off both the interest and the money you borrowed. The formula below finds the payment that brings the balance to exactly zero on the last payment.
The rate per period is the annual rate divided by the number of payments in a year. An 8% loan paid monthly charges 8 ÷ 12 = 0.667% a month on whatever balance is left.
If the rate is 0%, the formula does not apply. The payment is simply the loan amount divided by the number of payments, and the calculator handles that case for you.
Payment = P × r ÷ (1 − (1 + r)^−n), where r = annual rate ÷ payments per year and n = number of payments
Reading the amortization schedule
Each payment first covers the interest on the current balance; the rest reduces the balance. Early on the balance is large, so more of each payment goes to interest. Later the balance is small and almost all of the payment goes to principal.
The yearly view adds up each year of payments. It is useful for budgeting and, for a business, for separating the interest you may be able to claim as an expense from the principal, which usually is not an expense. Check the rules where you file with your accountant.
Interest = Balance × r; Principal = Payment − Interest; New balance = Balance − Principal
What this calculator does not include
Real offers often carry arrangement fees, documentation fees, a balloon payment at the end or a deposit up front. Lease and hire purchase deals in the UK and Europe, and equipment leases in the US and Canada, may also add VAT or sales tax to each payment. Add fees to the loan amount if they are rolled into the loan, and compare offers using the APR the lender quotes, which includes most fees.
Some lenders, especially for short-term business finance, quote a flat rate or a factor rate rather than an annual interest rate. Those cost more than the same number quoted as an amortizing rate, so ask for the APR before you compare.
Worked example
A print shop finances a $50,000 machine over 5 years at 8% a year, paid monthly.
| Loan amount | $50,000.00 |
| Annual interest rate | 8% |
| Term | 5 years (60 payments) |
| Monthly payment | $1,013.82 |
| Total interest | $10,829.18 |
| Total paid | $60,829.18 |
| First payment | $333.33 interest, $680.49 principal |
| Balance after year 1 | $41,527.99 |
The machine costs $10,829.18 in interest over five years. In the first year $3,693.83 of the $12,165.84 paid is interest, which is why paying extra early saves the most.