How to use the personal loan calculator
Enter the amount you want to borrow, the interest rate from your offer, the term in months or years, and the origination fee as a percentage of the loan. Then choose how the fee is paid. Most lenders that charge an origination fee take it out of the loan before sending you the money, so you receive less than you borrow. A few add it to the balance instead.
The result shows your fixed monthly payment, the total interest, the fee and the cash you actually receive. Most importantly, it shows the interest rate and the APR next to each other, so you can see how much the fee really adds to the cost of the loan.
Interest rate vs APR
The interest rate is what the lender uses to work out your monthly payment. The annual percentage rate (APR) is the yearly cost of credit, including finance charges such as an origination fee. Under the federal Truth in Lending Act and Regulation Z, lenders must show you the APR before you sign, which makes it the fair way to compare offers.
Take a $10,000 loan at 12% for 36 months. With no fee, the payment is $332.14 a month and the APR is the same as the rate, 12.00%. With a 5% origination fee taken out of the loan, the payment stays at $332.14, but you only receive $9,500.00. Paying $332.14 a month for $9,500.00 of cash is the same as a loan at 15.61% APR.
If the fee is added to the loan instead, you receive the full $10,000 but borrow $10,500.00, so the payment rises to $348.75 and the APR is 15.43%. Spreading the fee over a longer term lowers its effect on the APR: the same 5% fee over 60 months gives an APR of 14.28%, but you pay $3,346.67 in interest instead of $1,957.15.
How the monthly payment is calculated
Personal loans in the US are usually simple-interest installment loans with a fixed rate. Each month, interest is charged on the balance you still owe at the yearly rate divided by 12, and the rest of the payment reduces the balance. The payment formula is:
Payment = P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the amount borrowed, r the monthly rate and n the number of payments.
In the example, the first payment of $332.14 is $100.00 of interest and $232.14 of principal. As the balance falls, more of each payment goes to principal. Open the monthly amortization schedule above to see every payment.
Paying off a personal loan early
Paying extra each month goes straight to the principal, so you pay less interest and finish sooner. Adding $100 a month to the $10,000 loan above pays it off in 27 months instead of 36 and saves $526.23 of interest. Enter an amount in the extra payment box to see the effect on your own loan; the schedule then shows the faster payoff.
An extra payment does not reduce the origination fee you already paid, and the APR the lender disclosed assumes you pay on schedule. Before you prepay, check your loan agreement for a prepayment penalty. Many personal lenders do not charge one, but some do.
Getting the loan amount you need
If the fee comes out of the loan, borrow a little more to end up with the cash you need. Divide the amount you need by (1 − fee rate). To receive $10,000 with a 5% fee, you would borrow about $10,526.32, and your payment would be $349.62 instead of $332.14.
Also compare the total cost of borrowing, not just the payment. In the main example you pay $1,957.15 of interest plus a $500.00 fee, a total of $2,457.15 to borrow $9,500.00.
Tips before you sign
Compare APRs, not rates. A loan with a lower rate but a high fee can cost more than one with a higher rate and no fee.
Choose the shortest term you can afford. A longer term lowers the payment but raises the total interest.
Check your take-home pay. Make sure the payment fits your budget after taxes. Our paycheck calculator estimates your net pay in every state.
Borrowing in India? Our personal loan EMI calculator works in rupees, with the processing fee plus 18% GST.