How the monthly payment is worked out
A fixed-rate loan repaid in equal instalments uses one formula. In India the instalment is called an EMI, an equated monthly instalment.
P is the amount borrowed. Each payment first covers that month's interest on the balance. The rest reduces the balance. Early payments are mostly interest and later ones are mostly principal, which is what the schedule shows.
Worked example
Borrow $20,000.00 at 9% a year for 5 years. The monthly rate is 0.75% and there are 60 payments. The payment is $415.17 a month. Over the full term you repay $24,909.99, of which $4,909.99 is interest.
What this calculator assumes
- The interest rate stays fixed for the whole term.
- Payments are monthly and made on time, with interest charged monthly on the remaining balance.
- The payment is rounded to two decimal places and the final payment clears the remaining balance, so it can differ slightly from the others.
- Fees, insurance, taxes and early repayments are not included.
Lenders differ in how they count days, round amounts and charge fees, so a lender's own figures can differ a little from these. Their loan agreement is the figure that counts.
Questions
Why is the total interest so much higher on a longer term?
A longer term lowers each payment, but you owe the balance for longer, so interest is charged for more months. Change the term above and compare the total interest line.
Can I use it for a mortgage or a car loan?
Yes, if the rate is fixed and repayments are monthly. It does not handle variable rates, interest-only periods or balloon payments.
What if the rate is 0%?
The payment is the amount borrowed divided by the number of months.