Does a longer loan term save me money?

It lowers the monthly payment but raises total interest, because you pay interest for more months. $20,000 at 8% costs $4,332 in interest over 5 years but $9,118 over 10 years — more than double for the same loan.

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Q: How do I calculate a loan payment?

Use the amortization formula: M = P × r(1+r)^n / ((1+r)^n − 1), where P is the amount borrowed, r the monthly interest rate (annual ÷ 12), and n the number of monthly payments. A $20,000 loan at 8% for 5 years works out to $405.53 per month.

Q: What's the difference between interest rate and APR?

The interest rate is the cost of borrowing the principal. APR (annual percentage rate) also folds in mandatory fees like origination charges, making it the better number for comparing offers. APR is always equal to or higher than the rate.

Works for any fixed-rate loan — personal, auto, student, or business. Get the monthly payment, total interest, and payoff date, with the formula shown.

Monthly payment

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Total interest

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Total cost of loan

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Payoff time

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Saved with extra payments

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The loan payment formula

M = P × [ r(1 + r)ⁿ ] / [ (1 + r)ⁿ − 1 ]

P — amount borrowed · r — monthly rate (annual ÷ 12 ÷ 100) · n — number of payments

Worked example

Borrow $20,000 at 8% for 5 years: r = 0.006667, n = 60

M = 20,000 × [0.006667 × 1.006667⁶⁰] ÷ [1.006667⁶⁰ − 1] = $405.53/mo

Total paid: $24,332 → $4,332 in interest.

Payment at different rates and terms ($20,000 loan)

Rate	3 years	5 years	7 years
6%	$608 /mo	$387 /mo	$292 /mo
8%	$627 /mo	$406 /mo	$312 /mo
10%	$645 /mo	$425 /mo	$332 /mo
12%	$664 /mo	$445 /mo	$353 /mo

Notice the trade-off: stretching from 3 to 7 years cuts the payment roughly in half but more than doubles the interest paid. If an offer quotes fees on top of the rate, compare offers by APR instead — and for the month-by-month breakdown of any result here, use the amortization calculator.

Frequently asked questions

How do I calculate a loan payment?

M = P × r(1+r)ⁿ / ((1+r)ⁿ − 1). For $20,000 at 8% over 5 years: $405.53/mo.

What's the difference between interest rate and APR?

APR includes mandatory fees, so it's the true comparison number. It's always ≥ the stated rate.

Does a longer term save me money?

It lowers the payment but raises total interest — $20,000 at 8% costs $4,332 in interest over 5 years vs. $9,118 over 10.

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Note: Assumes a fixed rate and equal monthly payments; actual offers may include fees that change the true cost. Not financial advice. Last reviewed: July 2026.