How to Calculate Personal Loan Interest
Most fixed-rate installment loans use amortization. Each payment covers the interest accrued for the month and reduces some principal.
Standard payment formula
M = P × r × (1+r)^n ÷ ((1+r)^n − 1)
P is principal, r is the monthly rate, and n is the number of monthly payments.
Example
For $10,000 at 12% annually over 36 months, the monthly rate is 1% (0.12 ÷ 12). The estimated payment is about $332.14 per month, excluding lender fees.
Why total interest changes
Rate, term, payment timing and extra principal payments affect total interest. Lender fees can also change the overall borrowing cost and APR.