Personal Loan Calculator: Estimate Your Payments

Personal loans are calculated based on how much you borrow (principal), the interest rate, and the length of the loan (loan term). 

Using these factors, lenders will determine your monthly payment, the total interest you’ll pay over the life of the loan, and the total loan cost.

You can use our personal loan calculator above—which is based on the personal loan formulas below—to understand how to get the best possible deal on a personal loan.

How is the monthly payment for a personal loan calculated?

Lenders use three factors to calculate your monthly payment on a personal loan:

• The principal amount (how much you borrow)
• The interest rate
• The loan term (how many years the loan will take to pay off)

Before you accept a loan offer, the lender should be able to provide your monthly payment amount so you can determine if the loan fits into your monthly budget. 

Here’s the formula they’ll use:

P = (Pv * R/12) / [1 – (1 + R/12)^(-n * 12)]

Where:

• P: Monthly payment
• Pv: Principal loan amount
• R: Interest rate
• n: Loan term in years

For instance, let’s assume the following:

• Principal balance of $10,000
• Interest rate of 5%
• Loan term of 5 years

P = (10000 * .05/12) / [1 – (1 + .05/12)^(-60 * 12)]

P = $188 (rounded)

Here’s a closer look at how those factors impact your monthly payment:

• Principal: The more you borrow, the higher your monthly payment will be.
• Interest rate: The higher your interest rate, the higher your monthly payment will be.
• Loan term: The longer your loan term, the lower your monthly payment will be.

You can adjust any of those three numbers in the formula (or in our easy-to-use personal loan calculator above) to see how slight changes can impact your payment.

How is the interest rate for a personal loan calculated?

Personal loans are unsecured. You’re not using an asset as collateral like you would with a home or auto loan. This means interest rates are sometimes higher for personal loans than for other types of loans.

To calculate your personal loan interest rate, lenders analyze several factors, including your:

• Credit history
• Debt-to-income ratio
• Employment status

Those with a higher credit score are likely to get approved at a lower interest rate. Similarly, those with a low level of debt and/or a high level of income pose less of a risk to lenders; this also helps bring interest rates down.

When researching personal loans, you’ll typically see a lender’s starting annual percentage rate (APR) advertised. To qualify for that advertised rate, you’ll need excellent credit, steady income, and little to no debt.

The higher your interest rate, the higher your monthly payment will be. But by how much? The examples below show the difference between a 10% and 20% interest rate on a 5-year, $20,000 personal loan.

10% interest rate

P = (20000 * .10/12) / [1 – (1 + .10/12)^(-5 * 12)]

P = $425

20% interest rate

P = (20000 * .20/12) / [1 – (1 + .20/12)^(-5 * 12)]

P = $530

How is the loan term for a personal loan calculated?

Personal loan terms vary by lender but usually range from 1 to 7 years (12 to 84 months). Some lenders may only offer short-term loans, while others may allow you to spread your payments out over a longer period.

While choosing a longer repayment term lowers your monthly cost, you’ll spend more in interest over the life of the loan. That’s because interest accrues based on the remaining principal balance each month. With a long-term personal loan, the balance decreases by a smaller amount each month, meaning there’s a larger balance on which to pay interest—for a longer time.

The table below shows how monthly payments and total interest paid are affected by different loan terms. For this example, we assume a $25,000 loan at a 12% interest rate:

As you can see, extending the length of the loan can dramatically reduce your monthly payment, but it increases how much you spend on interest—just as dramatically.

How do fees factor into personal loan payment calculations?

The primary personal loan fee you’ll encounter is an origination fee. Not all personal loans have origination fees (a fee to initiate the loan), but if you’re looking for a personal loan with fair credit (or lower), expect an origination fee between 1% and 10% of the total loan cost.

Usually, you’ll pay the origination fee out of your loan proceeds. For example, if you borrow $10,000 and there’s a 5% fee, the lender will keep 5% ($500) and give you the rest ($9,500). However, you’ll still have to pay back the full $10,000.

Lenders also typically charge late payment fees if you don’t pay on time. Some, though not many, also charge an early payment penalty.

How to calculate the ideal personal loan

The best personal loan has a low interest rate and flexible enough terms that you can fit the monthly payment into your budget.

How do you know if you’re getting a good personal loan rate? If you get a quote significantly higher than the average rate for your credit score, it’s not a good loan.

Here’s the benchmark for various credit score ranges:

How much is safe to borrow? Aim to keep your debt-to-income ratio at 36% or lower. That means your total debts—mortgage (or rent!), car loan, student loans, credit cards, and this new personal loan—should total no more than 36% of your monthly take-home.

For instance, if your monthly income is $4,000, your total debts should be no more than $1,440. Assume your rent, car loan, and student loans amount to $1,200; that leaves room for a personal loan whose monthly payment is $240 or smaller.

Use this knowledge to determine how much you can afford to borrow—or how long to make your loan term to keep your monthly payment within your budget.