Personal Loan Calculator

How is a personal loan payment calculated?

Every personal loan uses the standard level-payment amortization formula: PMT = P × [r(1+r)^n / ((1+r)^n − 1)], where P is the principal, r is the monthly interest rate (annual rate ÷ 12), and n is the number of months.

Each payment is split between interest — calculated on the remaining unrounded balance — and principal, the portion that reduces what you owe. Early payments are mostly interest; later payments are mostly principal.

When the origination fee is added to your principal (some lenders structure it this way), P increases to loan amount + fee. You still receive the full loan amount in cash, but you repay principal, fee and interest on the fee over the entire term. When the fee is deducted from proceeds, P stays at the loan amount and you repay exactly that, but you receive less cash upfront — the net proceeds is the loan amount minus the fee.

What does an origination fee do to the cost of a personal loan?

Origination fees on personal loans typically range from 1% to 10% of the loan amount, though many lenders and credit unions charge none. The fee's impact depends on how your lender applies it — taken out of the cash you receive, or added to the balance you repay — but either way it raises the cost above the stated rate.

When a fee is deducted from proceeds: you borrow $15,000 at 12% for 36 months with a $450 fee (3%), you receive $14,550 in cash but repay $15,000 in principal plus $2,935.76 in interest — your payments total $17,935.76, the loan costs you $3,385.76 in interest and fee together, and your true APR is 14.13%, not 12%.

When the same fee is added to principal: you borrow $15,450 (15,000 + 450), receive $15,000 in cash, and repay principal + interest on the $450 — your monthly payment rises, your total interest rises, and your APR is again higher than the stated rate. Neither mode is universally cheaper: the deducted mode gives you less cash for the same payment; the added mode gives you full cash but a higher balance. The APR is the single number that accounts for the fee in either case, which is why lenders are required by Regulation Z to disclose it.

How is personal loan APR calculated under Regulation Z?

The federal Truth in Lending Act (TILA), implemented by Regulation Z (12 CFR Part 1026), requires lenders to disclose an Annual Percentage Rate that includes finance charges — of which the origination fee is one. That single rate is what lets you compare a low-rate offer with a fee against a higher-rate offer without one.

The regulation's Appendix J specifies the actuarial method: find the monthly rate i such that the Amount Financed (loan amount minus all finance charges) equals the present value of your scheduled payments. APR = i × 12.

This calculator uses the same actuarial method. A lender quoting a 12% rate and a 3% origination fee (deducted from proceeds) is offering a loan whose Reg Z APR is 15.09% over 24 months, 14.13% over 36, 13.64% over 48 and 13.35% over 60 — the shorter the term, the more the fee weighs. Comparing offers by their APR is the only apples-to-apples method: that 12% loan with a 3% fee costs more than a 13.5% loan with no fee on terms up to 48 months. The APR is the key number on the Loan Disclosure form your lender must provide under TILA.

What mistakes should you avoid when comparing personal loan offers?

The most frequent mistake is comparing monthly payments across different loan terms. A $15,000 loan at 12% costs $498.21/mo over 36 months (total interest: $2,935.76) versus $333.67/mo over 60 months (total interest: $5,019.93). The longer term looks cheaper but costs $2,084.17 more in interest over its life. Always compare total cost and APR, not payment alone.

The second most common mistake is ignoring the origination fee when a lender advertises a low rate. A 9% loan with a 5% origination fee has a higher APR than a 10.5% loan with no fee on every term up to 84 months (12.54% over 36 months, 10.64% over 84). The third mistake is accepting a shorter term than you can comfortably afford in order to save interest — a payment that strains your budget every month is a default risk. Use the extra-payment field: taking the longer term and paying extra is usually the safer structure because the extra payment is optional, not contractual.