Personal Loan Calculator: How to Calculate in 3 Seconds
This loan calculator will assist you in calculating the total cost and payment amounts.
The monthly payment for your personal loan will vary based on the loan amount, term, and interest rate, which largely depends on your credit score. Use the inputs below to estimate what your monthly payment might be.
Personal Loan Calculator: Receive assistance from a financial expert with 7 years of experience
Personal Loan Calculator
Personal Loan Calculator
Results:
Monthly Payment:
Total Payment:
Total Interest:
Where Can I Get a Personal Loan?
Here are some places where you can get a personal loan:
Traditional Banks:
Many traditional banks offer personal loans. They may be a good option if you already have a banking relationship with them, as you might qualify for a better interest rate. However, the application process can be more complex, and approval can take longer.
Credit Unions:
Credit unions are member-owned financial cooperatives that often offer personal loans with competitive interest rates and terms. They may also have a more relaxed qualification process compared to traditional banks.
Online Lenders:
Online lenders have become a popular option for personal loans in recent years. They often have a more streamlined application process and can offer quick funding decisions. However, interest rates from online lenders can vary widely, so it’s important to shop around and compare rates before you borrow.
Here are some additional things to consider when choosing a lender:
Interest Rates: This is a major factor. Always compare interest rates from different lenders before you borrow.
Loan Terms: Consider the loan term (repayment period) that best fits your budget.
Fees: Be aware of any origination fees, prepayment penalties, or other charges associated with the loan.
Minimum Requirements: Make sure you meet the lender’s minimum credit score and income requirements to qualify.
Customer Reviews: Read online reviews from other borrowers to get a sense of the lender’s customer service reputation.
It’s important to shop around and compare rates and terms from multiple lenders before you decide on a personal loan. You can use online comparison tools or contact lenders directly to get quotes.
Here are some resources that you can use to compare personal loan lenders:
Remember: Personal loans can be a useful financial tool, but borrowing comes with responsibility. Make sure you can afford the monthly payments before you borrow.
How to Calculate Payments for Your Personal Loan
Using a Personal Loan Calculator:
This is the simplest and most common way. Most banks, credit unions, and online lenders will have a personal loan calculator on their website. Here’s how to use one:
Input the loan amount you need.
Enter your desired loan term (repayment period) in months.
Provide your estimated interest rate. You can use the rates offered by the lender you’re considering or an average rate you find through research.
The calculator will then estimate your monthly payment amount. This will include both the principal amount (the money you borrow) and the interest charged over the life of the loan.
Manual Calculation Using the Loan Payment Formula:
This method requires a bit more math but can be helpful to understand how the payments work. The formula for calculating your monthly loan payment is:
R is the monthly interest rate (interest rate divided by the number of payments per year)
N is the total number of loan payments (loan term in months)
Here’s how to use the formula:
Convert your annual interest rate into a monthly interest rate. Divide the annual rate by the number of payments per year. (For example, if your annual interest rate is 6% and your loan term is 3 years (36 months), your monthly interest rate would be 6% / 12 months/year = 0.5% per month).
Plug the loan amount (P), monthly interest rate (R), and total number of payments (N) into the formula.
Use a calculator to solve for the monthly payment amount.
Example:
Let’s say you borrow $10,000 with a personal loan interest rate of 8% for a 2-year term (24 months).
This will give you a monthly payment of approximately $438.71.
Using a personal loan calculator is the easiest way to find your estimated monthly payment. However, understanding the loan payment formula can be helpful for you to see how the interest rate, loan amount, and loan term affect your payments.
How Is the Interest Calculated on a Personal Loan?
The interest on a personal loan is calculated based on the principle amount you borrow, the annual percentage rate (APR), and the loan term (repayment period). Here’s a breakdown of how it works:
1. Annual Percentage Rate (APR):
This is the interest rate you are charged for the loan, expressed as a yearly percentage. It includes both the base interest rate set by the lender and any fees associated with the loan (origination fees, processing fees, etc.).
2. Loan Term:
This is the total length of time you have to repay the loan, typically expressed in months (e.g., 12 months, 36 months, 60 months).
3. Method of Calculation:
Personal loan interest uses the concept of simple interest in most cases. This means the interest is charged on the remaining loan balance each month. Over time, as you repay the loan, the outstanding balance decreases, and so does the amount of interest you are charged.
Here’s the formula for calculating the monthly interest on a personal loan:
Monthly Interest Payment = Principal Balance x Monthly Interest Rate
Principal Balance: This is the remaining loan amount at the beginning of the month (it starts at the total loan amount and reduces each month with your payments).
Monthly Interest Rate: This is the APR divided by the number of payment periods in a year. (For example, if your APR is 8% and your loan term is 2 years (24 payments per year), your monthly interest rate would be 8% / 12 = 0.67% per month).
Here’s an example to illustrate:
Let’s say you borrow a personal loan of $10,000 with an APR of 8% for a 2-year term (24 months).
Principal balance in the first month = $10,000 (assuming no prepayment)
Monthly interest for the first month:
$10,000 (principal balance) x 0.0067 (monthly interest rate) = $67.00
Important Points:
Remember, this is just the interest amount for the first month. You will also make a payment towards the principal amount with your monthly payment.
The remaining loan balance will decrease each month, so the monthly interest amount will also decrease over the life of the loan.
Some lenders might use a different method to calculate interest, so it’s always best to consult the loan agreement for the specific details.
Here are some additional things to consider about personal loan interest:
Impact of Credit Score: Generally, borrowers with good credit scores qualify for lower interest rates on personal loans.
Shorter Loan Terms vs. Longer Loan Terms: Shorter loan terms typically come with lower total interest paid because you repay the loan faster. However, the monthly payments will be higher. Conversely, longer loan terms will have lower monthly payments but you will end up paying more total interest over time.
What Is the Average Interest Rate on a Personal Loan?
The average interest rate on a personal loan can vary depending on a number of factors, but here’s a ballpark range to give you an idea:
Current Average: As of June 5, 2024, according to a Bankrate study, the average personal loan interest rate is 12.22%.
Range: Personal loan interest rates can range from around 10.50% to 24% or even higher.
Here’s what can affect the interest rate you receive:
Credit Score: This is the biggest factor. Borrowers with good or excellent credit scores (typically above 690) typically qualify for lower interest rates. Conversely, borrowers with poor credit scores will likely receive higher interest rates.
Loan Amount: Sometimes, lenders may offer slightly lower interest rates for larger loan amounts due to the higher potential profit for them.
Loan Term: Shorter loan terms (e.g., 12 months) may come with slightly lower interest rates compared to longer terms (e.g., 60 months) because you repay the loan faster.
Lender: Different lenders have varying risk tolerances and overhead costs, which can affect the rates they offer.
Here are some tips to get a lower interest rate on a personal loan:
Improve your credit score: This is the most impactful step. Work on improving your credit score before applying for a loan by paying bills on time, reducing your credit utilization ratio, and maintaining a good credit history.
Shop around and compare rates: Don’t just accept the first rate you’re offered. Get quotes from multiple lenders, including banks, credit unions, and online lenders, to compare rates and terms.
Borrow only what you need: The less you borrow, the lower the risk for the lender, which may translate to a lower interest rate for you.
Consider a co-signer: If you have a weak credit score, having a co-signer with good credit can help you qualify for a lower interest rate. However, be sure to understand the risks and responsibilities of having a co-signer before going this route.
Remember: The interest rate is a significant factor that impacts the total cost of your loan. By understanding how it works and taking steps to qualify for a lower rate, you can save money on your personal loan.
Why Use a Personal Loan Calculator
A personal loan calculator can be a valuable tool for several reasons when considering a personal loan. Here’s why you should use one:
Provides Estimates Before You Borrow:
Personal loan calculators help you estimate your monthly payment amount and total interest cost before you actually apply for a loan. This allows you to see if the loan fits comfortably into your budget.
Compares Different Loan Options:
You can easily adjust factors like loan amount, interest rate, and loan term in the calculator. This lets you see how these variables affect your monthly payment and total loan cost. This helps you compare different loan options and choose the one that best suits your needs.
Improves Financial Planning:
By using a personal loan calculator, you can get a realistic idea of the financial commitment involved in taking out a personal loan. This can help you plan your budget accordingly and avoid overextending yourself financially.
Saves Time and Effort:
Manually calculating loan payments can be time-consuming and error-prone. Personal loan calculators do the math for you quickly and accurately, saving you time and effort.
Empowerment Through Knowledge:
Using a calculator allows you to experiment with different loan scenarios. This empowers you to make informed decisions about borrowing and choose the loan that best suits your financial situation.
Here are some additional benefits of using a personal loan calculator:
Some calculators can factor in fees: While not all calculators do this, some can account for origination fees or other charges associated with the loan, giving you a more accurate picture of the total cost.
Can identify potential roadblocks: By estimating the payment amount, you can identify potential roadblocks in your budget before you borrow. If the payment seems too high, you may need to reconsider the loan amount or look for ways to save money elsewhere in your budget.
Overall, a personal loan calculator is a free and easy-to-use tool that can help you make informed decisions about borrowing. It can save you time, money, and financial stress in the long run.
The Bottom Line
To discover the optimal personal loan for your financial circumstances, explore various lenders and contrast their rates, fees, and repayment conditions. Additionally, utilize Investopedia’s personal loan calculator to approximate your monthly payments and overall expenses.