How to Calculate Loan Payments (Monthly Payment Formula)

Q: How do you calculate a monthly loan payment?

Use the amortization formula: M = P x r x (1 + r)^n / ((1 + r)^n - 1), where P is the loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the number of monthly payments. The result is a fixed monthly payment.

By the Tool Goodie Team · Updated July 4, 2026 · 5 min read

To calculate a fixed monthly loan payment, use the amortization formula: M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the amount borrowed, r is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments (years × 12). It works for any fixed-rate loan — car, personal, student, or mortgage. Here's what it means and what actually moves your payment.

Key takeaways

Monthly payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1).
Three inputs set the payment: loan amount, rate, and term.
A longer term lowers the monthly payment but raises total interest.
Skip the math with the loan calculator.

The amortization formula

M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
P = loan amount · r = monthly rate (annual ÷ 12) · n = number of payments (years × 12)

"Amortizing" means the loan is paid off in equal monthly payments over the term. Convert the annual rate to a monthly one and count the payments, and the formula spits out a single fixed number you'll pay each month until the balance hits zero.

A worked example

Say you borrow $10,000 at 6% annual interest over 5 years:

P = 10,000
r = 6% ÷ 12 = 0.005 per month
n = 5 × 12 = 60 payments

Plug those in and the monthly payment is about $193.33. Over 60 months you'd pay roughly $11,600 total — meaning about $1,600 in interest on top of the $10,000 you borrowed.

Let the tool do it: the free Loan Calculator gives your monthly payment, total interest, and total cost from a loan amount, rate and term — for a car, personal, student or any fixed-rate loan.

What actually moves your payment

Loan amount. Bigger loan, bigger payment — borrowing less is the most direct lever.
Interest rate. Even one percentage point noticeably changes both the monthly payment and the total interest. Shopping rates pays off.
Term. A longer term (say 72 vs 48 months on a car) lowers the monthly payment but means you pay interest for longer — often far more in total.

The tension between "lower monthly payment" and "less total interest" is the key trade-off. A short term costs more each month but far less overall; a long term does the reverse. Run both in a calculator before you sign.

This article is for general education only and is not financial advice. It assumes a fixed rate and equal monthly payments, and ignores fees. Confirm exact figures with your lender.

Frequently asked questions

How do you calculate a monthly loan payment?

Use the amortization formula: M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments. The result is a fixed monthly payment.

What determines the size of a loan payment?

Three things: the amount borrowed, the interest rate, and the loan term. A larger loan or higher rate raises the payment; a longer term lowers the monthly payment but increases total interest.

Does this formula work for car and personal loans?

Yes. Any fixed-rate, fully amortizing loan uses the same formula, so you can calculate a car loan, personal loan, student loan or mortgage the same way.