UNDERSTAND THE ANSWER How is this calculated? Both plans use the same principal with fixed monthly payments. The comparison includes principal and interest only; lender fees, insurance, penalties and irregular payment timing are excluded.
Fixed-payment loan comparison Payment = P × [r(1 + r)ⁿ] ÷ [(1 + r)ⁿ − 1]
A practical example Compare a 25,000 loan at 7.5% for five years with 6.5% for four years. The shorter plan can have a higher payment while reducing total interest.
COMMON QUESTIONS Quick answers Should I choose the lowest monthly payment?+ Not automatically. Compare total interest, fees and payoff time as well as the monthly amount.
Does Plan B use a different loan amount?+ No. Both plans use the same principal so the rate-and-term tradeoff is clear.
How accurate is this estimate?+ The math follows the displayed formula, but the result is only as accurate as the rate, fees, timing and other assumptions you enter.
How is a loan payment calculated?+ A standard amortization formula spreads principal and interest over the selected number of monthly payments.
Does a shorter term save interest?+ Usually yes. A shorter term raises the payment but reduces the number of months that interest accrues.
Can I use this for a personal loan?+ Yes, if the loan has a fixed rate and regular monthly payments. Add financed fees to the loan amount when appropriate.
Why is the first payment mostly interest?+ Interest is based on the outstanding balance, which is highest at the beginning of an amortizing loan.