Loan Interest Calculator
Calculate total interest paid over the life of any loan.
What this calculator does
This loan interest calculator isolates the number most loan quotes bury: what the borrowing actually costs. Enter the amount, rate, and term, and it returns the monthly payment, the total interest across the loan, and the total repaid — with an extra payment field that shows how much interest an overpayment removes.
The monthly payment is the figure lenders lead with, because it is the smallest and most reassuring number in the transaction. Total interest is the figure that tells you what you paid for the privilege. On longer terms the two tell quite different stories about the same loan.
When to use it
Use it whenever a lender offers you a choice of term. Two quotes on the same balance at the same rate but different lengths look like a payment decision and are actually a cost decision, and the size of the gap usually surprises people.
It is also the tool for the overpayment question. Before deciding whether spare cash should go against a loan or into savings, run the extra payment field and compare the interest saved against what the money would earn elsewhere. And it is useful in reverse: if you know what a loan will cost you in total interest, you can decide whether the thing you are borrowing for is worth that much more than its sticker price.
Understanding the inputs
Loan amount is the principal you actually owe at the start, after any down payment and including anything rolled in. Interest rate is the nominal annual rate that determines the payment — use the note rate rather than the APR, since the APR includes fees and would overstate the pure interest figure.
Term in years sets the number of monthly payments and is the input with the largest effect on total interest. The extra monthly payment field applies additional money directly to principal each month. Confirm with your servicer that overpayments are applied to principal rather than being banked toward the next scheduled payment, which is a common default that quietly cancels the benefit.
How is this calculated?
Total Interest = (Monthly Payment × Total Months) − Principal. Monthly Payment = P[r(1+r)^n]/[(1+r)^n-1].
A worked example
Take $20,000 at 9 percent over five years. The monthly payment is about $415 and total interest comes to roughly $4,910 — around 25 percent of the amount borrowed.
Stretch the same loan to seven years and the payment drops to about $322, which feels like an improvement of $93 a month. Total interest rises to roughly $7,030. Those two extra years cost about $2,120 in additional interest, so the borrower is paying $2,120 for the convenience of a lower payment. Whether that is a good trade depends entirely on what the $93 a month is doing instead.
Limitations and assumptions
This assumes a fixed rate, monthly compounding, and a fully amortizing loan with no fees. It does not model origination fees, late charges, precomputed interest with a Rule of 78s rebate, variable rates, interest-only periods, or deferred payment plans.
It also treats interest as a pure cost, which for tax-deductible categories such as mortgage or student loan interest overstates the real burden. If deductibility applies, the after-tax cost of debt calculator gives the truer figure. For anything with an unusual payment structure, the lender's Truth in Lending disclosure is the authoritative document.
Common Questions
- How is interest calculated on a loan?
- On a standard amortizing loan, interest is charged each month on the outstanding balance. Multiply the balance by the annual rate divided by twelve. That amount comes out of your payment first, and whatever remains reduces the balance — which is why the interest portion shrinks month by month as the balance falls.
- What is the difference between simple interest and precomputed interest?
- Simple interest accrues daily or monthly on what you still owe, so paying early genuinely saves money. Precomputed interest fixes the total finance charge at signing and refunds only a portion if you pay off early, often using the Rule of 78s. Most modern loans are simple interest — check the note, because it changes what overpaying is worth.
- Why does total interest jump so much on a longer term?
- Because you are borrowing the same money for longer and paying down principal more slowly. On $20,000 at 9 percent, five years costs about $4,910 in interest and seven years about $7,030 — a 43 percent increase for two extra years, even though the rate never changed.
- Does making one extra payment a year actually help?
- Meaningfully, yes. One extra payment annually is roughly equivalent to adding 8.3 percent to each monthly payment, and because it lands entirely on principal it removes all future interest on that amount. On a mid-length loan it typically shaves a year or more off the term.
- Is it better to pay off a loan early or invest the money?
- Compare the loan rate to a realistic after-tax return. Paying off a 9 percent loan is a guaranteed, risk-free 9 percent return; matching that in the market means taking real risk. Above roughly 6 or 7 percent, paying down debt usually wins. Below 4 percent, investing generally does, assuming your emergency fund is already funded.
- What is the difference between interest rate and APR?
- The interest rate determines your payment. The APR folds in fees — origination charges, points, mortgage insurance — and expresses the total borrowing cost as an annual percentage, standardized under Regulation Z so offers are comparable. If a loan has no fees the two match. If it has fees, the APR is always higher.
- How does daily versus monthly compounding change things?
- Less than most people expect on a standard loan. At 9 percent, monthly compounding gives an effective annual rate of about 9.38 percent and daily about 9.42 percent — a few dollars a year on a mid-sized balance. It matters far more on revolving credit, where daily compounding runs against a balance you keep adding to.
- Can I deduct loan interest on my taxes?
- Only for specific categories. Mortgage interest on up to $750,000 of acquisition debt, student loan interest up to $2,500 a year subject to income phase-outs, and interest on genuine business or investment borrowing are deductible. Interest on car loans, credit cards, and personal loans is not deductible for individuals.