Complete guide: Loans
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A fixed-payment loan splits each payment between interest and principal. Early payments contain more interest because the outstanding balance is higher. A 1,200 loan at 12% nominal annual interest over 12 months has a payment of about 106.62 before charges.
The monthly rate is the nominal annual rate divided by 12. This simulation assumes a fixed rate, month-end payments and no grace period. It is not an APR or effective annual rate: insurance, fees and the actual calendar can change a bank offer's cost.
An extra monthly payment reduces principal and shortens the term while keeping the base payment. The last payment is adjusted to the balance. Fees are separate upfront payments, not financed. The schedule uses full internal precision and rounds for display; a bank may round each payment differently.
How it works
- 1Payment = principal × r ÷ [1 − (1 + r)⁻ⁿ], where r = annual rate/1,200 and n = months.
- 2Monthly interest = balance × r; the rest of the payment and the extra reduce principal.
- 3Financing cost = interest + fees. At zero interest, payment = principal ÷ months.
Frequently asked questions
How is a loan's monthly payment calculated?
It uses principal, nominal annual rate and term in the fixed-payment formula. At zero interest, divide principal by months.
What happens if I pay extra monthly?
The extra repays principal, reduces interest and shortens the term. Prepayment penalties are not included; check your contract.
Is the nominal rate the same as APR?
No. APR accounts for compounding and certain costs. Enter the fixed nominal rate here; fees are added separately.