About

Borrowing money often comes with hidden costs disguised by attractive monthly payments. A loan is not simply the principal amount plus a flat fee; it is a complex financial product governed by amortization schedules where interest is front-loaded. Understanding the ratio of interest to principal is critical for long-term financial health. Failure to account for the total cost of credit can lead to paying double the original loan amount over time.

This tool functions as a financial "truth revealer." It utilizes standard amortization formulas to break down the monthly obligation into its constituent parts. By visualizing the disparity between the amount borrowed and the amount repaid, users can make informed decisions about refinancing, shortening loan terms, or increasing down payments to minimize interest leakage.

Formulas

The monthly payment M is calculated using the standard amortization formula:

M = P i(1 + i)ⁿ(1 + i)ⁿ − 1

Where:

P = Principal Loan Amount
i = Monthly Interest Rate (APR ÷ 1200)
n = Total Number of Payments (Months)

Total Interest Paid (I_total) is determined by:

I_total = (M × n) − P

Reference Data

Loan Type	Typical Term	Typical APR (Est.)	Notes
30-Year Fixed Mortgage	360 Months	6.0% - 8.0%	Standard home loan, lower payments, high total interest.
15-Year Fixed Mortgage	180 Months	5.5% - 7.5%	Higher payments, significantly lower total interest.
New Auto Loan	48 - 72 Months	5.0% - 9.0%	Depreciating asset. Terms over 60 months are risky.
Used Auto Loan	36 - 60 Months	7.0% - 12.0%	Higher rates due to vehicle risk.
Personal Loan	12 - 60 Months	10.0% - 25.0%	Unsecured debt, highest interest impact.
Credit Card (Min Payment)	Undefined	15.0% - 30.0%	Negative amortization risk if only minimum paid.
Student Loan (Standard)	120 Months	4.0% - 8.0%	Fixed term, usually 10 years.
Payday Loan	1 Month	300% - 600%	Predatory rates, extreme cost per dollar.

Frequently Asked Questions

This is due to amortization. Interest is calculated on the remaining balance. At the start of the loan, your balance is highest, so the interest charge is highest. As you pay down the principal, the interest portion decreases.

Yes. Any amount paid over the required monthly payment goes directly to the principal balance (usually). This reduces the "balance" that future interest is calculated on, shortening the loan term and saving significant money.

The Interest Rate is the cost of borrowing the principal. The APR (Annual Percentage Rate) includes the interest rate plus other fees (origination fees, closing costs), giving a more accurate picture of the total cost of the loan.

No. This tool assumes a standard amortizing loan where you pay both principal and interest every month to pay off the debt by the end of the term.