Personal Loan Calculator

A personal loan is a type of loan that provides a lump sum of money, repaid in fixed monthly installments over time. People use personal loans for debt consolidation, home improvements, medical expenses, or major purchases. Understanding how personal loans work and how payments are calculated can help borrowers make informed financial decisions.

How Personal Loans Work

1. Loan Amount – The total amount borrowed.

2. Interest Rate – The cost of borrowing, usually expressed as an Annual Percentage Rate (APR).

3. Loan Term – The length of time (e.g., 12 to 60 months) over which the loan is repaid.

4. Monthly Payment – The fixed amount paid each month, covering principal + interest.

Personal Loan Payment Formula

Loan payments are calculated using the formula:

M=P×r(1+r)n(1+r)n−1M = P \times \frac{r(1+r)^n}{(1+r)^n - 1}

Where:

• M = Monthly payment

• P = Loan principal (amount borrowed)

• r = Monthly interest rate (APR ÷ 12)

• n = Total number of payments (loan term in months)

Example Loan Calculation

For a $10,000 loan at 6% APR for 3 years (36 months):

• Monthly interest rate = 0.06 ÷ 12 = 0.005

• Monthly payment ≈ $304

Factors That Affect Loan Payments

• Credit Score – Higher scores qualify for lower interest rates, reducing total cost.

• Loan Term – Shorter terms mean higher payments but less interest paid overall.

• Prepayment Penalties – Some loans charge fees for paying off early.

Instead of manual calculations, a personal loan calculator can estimate monthly payments and total loan costs based on amount, interest rate, and loan term. This helps borrowers plan budgets and compare loan offers before committing.