Understanding Loan Calculations
A loan is a sum of money borrowed from a lender that must be repaid with interest over a set period of time. The monthly payment depends on three key factors: the principal (loan amount), the annual interest rate, and the loan term.
Loan Payment Formula
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
P = Loan Amount | r = Monthly Rate (APR/12) | n = Total Months
P = Loan Amount | r = Monthly Rate (APR/12) | n = Total Months
Tips to Reduce Loan Costs
- Make extra payments toward the principal to shorten the loan term and save on interest
- Refinance at a lower interest rate when your credit score improves
- Choose a shorter loan term to pay less interest overall (though monthly payments will be higher)
- Avoid missing payments — late fees and penalty interest can add up quickly
Types of Loans
| Loan Type | Typical Rate | Typical Term |
|---|---|---|
| Personal Loan | 6–36% | 1–7 years |
| Auto Loan | 4–15% | 3–7 years |
| Student Loan | 4–12% | 10–25 years |
| Home Equity Loan | 5–10% | 5–30 years |
| Payday Loan | 200–700%+ APR | 2–4 weeks |