Simple Loan Calculator

Use this calculator to find out how much a loan will actually cost you. There are lots of different kinds of loans, such as mortgages, home equity, student/educational, automobile, and "personal" loans for any purpose. While each of these loans has its own issues for you to consider, they all involve three basic components: loan amount, interest rate and term.

The higher the amount, interest rate, or term, the more the loan will eventually cost you in interest. Of course, the cheapest option would be simply to avoid getting a loan in the first place and find the money some other way. But since that is presumably not possible, you have to try to save as much as you can on the loan by getting the loan amount, interest rate and term as low as you can possibly afford.

To use this calculator, first come up with the highest monthly payment you can afford. Then adjust the values for loan amount, interest rate, and term to see how you can get to that monthly amount with the lowest total interest.

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Calculator Legend

Loan Amount: Enter the entire amount of the loan (the amount you are borrowing). If there are any application fees being folded into the loan, remember to include them in the total. The calculator lets you specify amounts between $5,000 and $1,000,000.
Interest Rate: the quoted rate of interest on the loan.
Term: The amount of time you have to pay off the loan. The calculator lets you specify between one month and 480 months (40 years).

Loans Explained:
Loan Amount & Interest

The more you borrow, the more you pay in interest, period. Your first step in controlling your loan cost should be to try to make the loan as small as possible to start with. Don't be afraid to make hard decisions about what is and isn't truly necessary. For instance, if you are taking out an educational loan, you may want to weigh the costs and benefits of accelerating your graduation, if that will be less expensive overall--or taking fewer classes so that you can do more work in the meantime to pay your educational costs directly.

Getting the Lowest Interest

Lenders calculate interest based on the risk they feel they are taking on by loaning you the money. What risk could the bank or lending company possibly have in making you a loan? The risk that you won't pay. Lenders generally feel more or less at risk based on two factors:
  • Your credit rating and history. Generally speaking, the higher your credit rating, the lower your risk. Your credit rating is determined not just based on your credit payment history but also on how long your history is--if you're in your 20s, for instance, it's unlikely you'll have the highest possible credit rating. Still, having a credit history free of defaults and late payments is particularly important. Make sure you check your credit report months in advance of taking out a loan, if at all possible. Any inaccuracies could take months to clear up.
  • Collateral. The lowest interest rates are usually on home equity loans and mortgages. That's because the bank can easily take your house if you don't pay. Car loans have somewhat higher interest, since cars are worth less and since you can try to hide them from the lenders if they try to repossess. The highest interest of all is on personal loans, which generally have no collateral. If you have to take out a personal loan, try putting up some collateral against the loan. For instance, some banks and credit unions may let you use your retirement savings as collateral in some cases.

Loan Term

The term is the amount of time you are allowed to make payments on your loan. The longer the term, the longer interest has to accumulate. For instance, compared with a 30-year mortgage, a 15-year mortgage usually saves hundreds of thousands of dollars. In the specific case of mortgages, a shorter term often means a lower interest rate. For other types of loans, ask the lender if a shorter term might mean a lower interest rate.

Lowering Your Total Cost with Prepayments

No matter how long your loan term is, you can usually reduce your total interest by making additional payments against the loan amount. A smaller loan amount means less interest to be calculated on it. But be careful: some loans will penalize early payments, or prepayments, with additional fees. Be sure you know about any prepayment penalties before taking out the loan.