The basic idea

For a typical fixed-rate amortising loan (such as many personal loans or mortgages), each payment covers interest for the period plus some principal. Early payments are mostly interest; later payments repay more principal.

This guide explains the standard formula used by many repayment calculators. Results are estimates only and may not match a specific lender’s schedule.

Standard monthly repayment formula

Let:

  • P = loan principal (amount borrowed)
  • r = monthly interest rate (annual rate ÷ 12, as a decimal)
  • n = total number of monthly payments (years × 12)
Monthly payment = P × [r(1 + r)n] ÷ [(1 + r)n − 1]

If the interest rate is zero, the monthly payment is simply P ÷ n.

Worked example

Example: Borrow $250,000 at 6.5% per year for 30 years.

Monthly rate r = 0.065 ÷ 12 ≈ 0.0054167

Number of payments n = 30 × 12 = 360

Monthly payment ≈ $1,580.17

Total paid over the term ≈ $1,580.17 × 360 ≈ $568,861

Total interest ≈ $568,861 − $250,000 ≈ $318,861

What changes the payment?

  • Higher principal → higher payment.
  • Higher interest rate → higher payment.
  • Longer term → lower monthly payment, but usually more total interest.

Important limitations

  • Many loans include fees, insurance, variable rates or offset accounts not captured by a simple formula.
  • Rounding rules and payment timing can differ by lender.
  • This is general information, not personal financial advice. Check figures with your lender or adviser before deciding.

Estimate payments with the free tool:

Open Loan Calculator