How is a loan monthly payment calculated?

Monthly loan payment is calculated using: M = P[r(1+r)^n]/[(1+r)^n-1] where P is the loan principal, r is the monthly interest rate, and n is the number of monthly payments.

EMI stands for Equated Monthly Instalment. It is the fixed monthly amount a borrower pays to repay a loan over a set period. Each EMI includes both principal and interest components.

What is a good loan interest rate?

Personal loan rates typically range from 6–36% APR depending on credit score. Rates below 10% are generally considered good for personal loans.

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Monthly Payment (EMI)

How to Use This Loan Calculator

Select your loan type, enter the loan amount, annual interest rate, and loan term. The calculator instantly computes your monthly EMI, total interest paid, and shows a full yearly repayment schedule.

EMI Formula

EMI = P × [r(1+r)ⁿ] ÷ [(1+r)ⁿ − 1]

Where P = principal, r = monthly interest rate (annual rate ÷ 12), n = total number of months.

Types of Loans

Personal Loan: Unsecured loan for any purpose. Typical rates: 6–36% APR. Terms: 1–7 years.

Car Loan: Secured loan for vehicle purchase. Typical rates: 4–15% APR. Terms: 2–7 years.

Student Loan: Education financing. Federal rates 4–8%, private 3–14%. Terms: 10–25 years.

How to Reduce Total Interest

Making extra payments reduces your principal faster, cutting total interest significantly. Even one extra payment per year can reduce a 5-year loan by several months and save hundreds in interest.

How Loan Payments Are Calculated

Loan payments use the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of payments. This formula ensures each payment is equal while the proportion of interest vs principal shifts over time — early payments are mostly interest, later payments are mostly principal.

Simple Interest vs Compound Interest Loans

Most personal loans, car loans and mortgages use amortizing interest — interest is calculated on the remaining balance each period. Credit cards typically use compound interest on unpaid balances. The key difference: with amortizing loans, making extra payments directly reduces your principal and saves significant interest. With credit cards, interest compounds on the full balance if you don't pay it off.

How Extra Payments Save Money

Making additional payments reduces your principal faster, which reduces the balance on which interest is calculated. On a $20,000 car loan at 6% over 60 months (monthly payment $386.66), making just one extra payment per year reduces the total interest paid by approximately $300 and cuts 3 months off the loan. On a mortgage, the savings are far more dramatic — see our Mortgage Calculator.

Frequently Asked Questions

What is EMI?

EMI (Equated Monthly Instalment) is the fixed monthly payment you make to repay a loan. Each payment covers both interest (calculated on remaining balance) and principal reduction. In early payments, more goes to interest; in later payments, more reduces the principal.

What's the difference between APR and interest rate?

The interest rate is the base cost of borrowing. APR (Annual Percentage Rate) includes the interest rate plus any additional fees and costs, giving a more complete picture of the true cost of the loan.

Can I pay off a loan early?

Yes, but check if your lender charges a prepayment penalty. Many personal loans allow early repayment without fees. Paying off early saves on total interest costs.

How does my credit score affect my loan rate?

A higher credit score (750+) typically earns the lowest available rates. Scores below 650 may only qualify for higher-rate loans. Even a 2% difference in rate on a $20,000 loan can mean $1,000+ in extra interest over 5 years.

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