Why the monthly payment is a distraction
Lenders spend millions of dollars optimising for one number: the monthly payment. A lower monthly figure feels affordable, so that's what gets highlighted in every ad, every comparison site, and every branch conversation.
But the monthly payment is a function of both the rate and the term. Stretching a loan from 3 years to 7 years cuts the monthly payment dramatically — while the total interest you pay more than doubles. This calculator shows you what actually leaves your pocket.
How the calculation works
The standard formula for a fixed-rate amortising loan is:
P = principal (amount borrowed)
r = monthly interest rate (annual rate ÷ 12)
n = total number of monthly payments
From there, total repaid = monthly payment × n, and total interest = total repaid − P. The gap between those two numbers is the true cost of borrowing.
Real examples: what a $20,000 loan actually costs
| Rate | Term | Monthly | Total interest | Extra paid |
|---|---|---|---|---|
| 5% | 3 years | $599 | $1,562 | +7.8% |
| 7.5% | 5 years | $400 | $4,022 | +20.1% |
| 12% | 7 years | $356 | $9,903 | +49.5% |
| 18% | 7 years | $404 | $13,926 | +69.6% |
Notice that the $356/month option looks the cheapest — until you see you're paying nearly $10,000 in interest on a $20,000 loan.
How to reduce what you pay
Shop your rate. A 2% rate reduction on a $20,000 5-year loan saves over $1,000 in interest. Use a loan comparison service before accepting any offer.
Shorten the term where possible. Even adding $50/month to your repayment can save hundreds in interest and clear the loan months earlier.
Refinance if your credit has improved. Lenders update their offers constantly. If your credit score has risen since you took out a loan, refinancing could meaningfully cut your remaining interest bill.
Frequently asked questions
Does this calculator account for fees? No — it calculates pure interest on an amortising loan. Always add any origination fees, early repayment charges, or insurance costs to get the complete picture.
What about variable rate loans? Variable rates change over time, so any calculation is an estimate. This tool gives you a baseline using a fixed rate — run it at both the current rate and a worst-case scenario to understand your range.
Is this the same as APR? APR (Annual Percentage Rate) includes fees; this calculator uses the raw interest rate. Your lender's APR will typically be slightly higher than the rate you enter here.