Payment Calculator

Key Inputs & Variables

The calculator relies on four primary inputs to determine loan details:

• **Loan Amount:** The principal amount of money received by the borrower.
• **Loan Term:** The total duration of the loan. For auto loans, terms can range from 12 to 96 months.
• **Monthly Pay:** The fixed amount paid monthly by the borrower, which is especially critical in the "Fixed Payments" mode.
• **Interest Rate:** The cost of borrowing the principal amount.

Interest Rate vs. APR

It's important to understand the difference between the interest rate and the Annual Percentage Rate (APR):

• Interest Rate: This is simply the **cost of borrowing the principal loan amount**. Using this rate allows you to determine loan details without the addition of other costs.
• APR (Annual Percentage Rate): This is a **broader measure of the cost of a loan**. It includes the interest rate plus other charges like **broker fees, discount points, closing costs, and administrative fees**, which are prorated over the life of the loan. If a loan has no associated fees, the interest rate equals the APR. To find the total cost, the **advertised APR generally provides more accurate loan details**.

Fixed vs. Variable Rates

Loans typically come with either a fixed or variable interest rate. This calculator is designed for **fixed-rate loans only**.

• **Fixed Rates:** The **majority of loans have fixed interest rates**, which means the rate stays the same for the life of the loan. This provides predictable monthly payments and is common for mortgages, auto loans, and student loans.
• **Variable Rates:** These rates may change based on indices such as **inflation** or the **central bank rate** (like the U.S. Federal Reserve rate or Libor). This alters routine payment amounts and total interest owed. Lenders update these rates periodically and may place **caps** on how high a rate can go. Variable rates are generally more favorable to the borrower when interest rates are trending downward.

Choose Your Loan Structure

The calculator is built around two primary strategies for managing loan repayment: fixing the term or fixing the payment amount.

• **Fixing the Term:** By setting a loan term, you can determine the necessary monthly payment. For auto loans, choosing the **shortest term** your budget can accommodate typically results in the **lowest total cost**. For mortgages, this mode helps compare options like 15-year vs. 30-year loans to align with long-term goals. For more specific calculations, use our Auto Loan Calculator or Mortgage Calculator.
• **Fixing the Payments:** This strategy is useful for understanding how long it will take to pay off a debt, like a credit card, by making a consistent monthly payment. It's also the key to planning an early payoff.

Strategy for Early Payoff

To see how quickly you can pay off a loan and how much interest you can save, simply **add any extra amount** you can afford to the **"Monthly Pay" section** in the "Fixed Payments" tab. This will recalculate the loan term, showing you the accelerated payoff timeline.

Handling Insufficient Payments

If your monthly payment is too low to cover the accruing interest, the loan balance will grow over time. The calculator will indicate this scenario. To resolve it, you must adjust one of three variables:

• Lower the **Loan Amount**.
• Increase the **Monthly Pay**.
• Find a lower **Interest Rate**.

Interest Rate Strategies

• **Use APR for Accuracy:** To understand the true total cost of a loan, use the advertised APR, as it includes fees.
• **Negotiate Your Rate:** If you have **excellent credit**, you may be able to negotiate a more favorable interest rate on variable-rate loans or credit cards.
• **Consider Variable Rates:** While this calculator is for fixed-rate loans, remember that variable rates can be advantageous if you expect interest rates to trend downward.