How Loan Payments Work

The 3 key factors

• Loan amount: The total money you borrow.
• Interest rate: The cost of borrowing.
• Loan term: How long you take to repay.

How interest affects your loan

Higher interest rates increase your monthly payment and total repayment. Even a small change in interest rate can significantly impact how much you pay over time.

Short vs long loan term

A shorter loan term means higher monthly payments but less total interest. A longer term reduces your monthly payment but increases the total interest paid.

Example

A $100,000 loan at 5% interest over 15 years will cost significantly less in total interest than the same loan over 30 years, even though the monthly payment is higher.

Try it yourself

Use the loan calculator to test different loan terms and interest rates to see how they affect your monthly payment and total cost.

What affects my monthly loan payment?

Your monthly payment depends on the loan amount, interest rate, and loan term.

Is a longer loan term better?

A longer loan term lowers your monthly payment but increases the total interest paid.

How can I reduce total interest?

You can reduce total interest by choosing a shorter loan term or a lower interest rate.

Should I focus on monthly payment or total cost?

It is better to consider both. A lower monthly payment may result in higher total cost over time.