How to Calculate a Loan Payment

It is important to be able to calculate a loan payment so that you can decide if the loan payments will be affordable. You can also use the information to compare different loans and shop around for the best deal.

Step 1

Start by entering the amount of the loan into a calculator.

Step 2

If you're going to make a down payment, and you know the dollar amount of it, subtract it from the loan amount. If you only know the percentage of the down payment, calculate the dollar amount this way: take the percentage and divide it by 100, then multiply that number by the amount of the loan.

Step 3

Deduct any down payment you may have from the loan amount.

Step 4

To find out your monthly payment, you must know the length of the loan and the interest rate. It is then a good idea to enter this information into a loan calculator (try the one in the resources section), because the math becomes awfully complex to do on your own at this point.

Tip

Play around with the calculations by changing the loan amount, the length of the loan, the down payment amount, and the interest rate. This will help you to understand exactly how much each of those factors affects the bottom line--how much you owe each month. It will also enable you to compare and contrast loans from different lenders.

Warning

When it comes to interest, keep in mind the difference between the annual percentage rate and the annual percentage yield when factoring your payments. APR doesn't take into account the compounding of interest, which your lender may do monthly or even daily.

Things You'll Need

  • Calculator

  • Loan Calculator

  • Terms of the Loan

resources