Calculate Your Loan Payments
Current Average Loan Rates
| Loan Type | Average Rate | Typical Term | Average Loan Amount | Monthly Payment |
|---|---|---|---|---|
| 30-Year Fixed Mortgage | 6.5% - 7.5% | 30 years | $350,000 | $2,212 - $2,447 |
| 15-Year Fixed Mortgage | 5.8% - 6.8% | 15 years | $250,000 | $2,088 - $2,230 |
| Auto Loan (New Car) | 4.5% - 9.0% | 5-6 years | $35,000 | $650 - $740 |
| Auto Loan (Used Car) | 6.0% - 12.0% | 4-5 years | $25,000 | $550 - $690 |
| Personal Loan (Good Credit) | 8.0% - 15.0% | 3-5 years | $15,000 | $300 - $365 |
| Personal Loan (Fair Credit) | 15.0% - 30.0% | 3-5 years | $10,000 | $350 - $450 |
| Federal Student Loan | 4.0% - 7.0% | 10-25 years | $30,000 | $300 - $350 |
| Private Student Loan | 5.0% - 12.0% | 10-20 years | $40,000 | $425 - $440 |
| Business Loan | 6.0% - 15.0% | 5-10 years | $100,000 | $1,150 - $1,660 |
| Home Equity Loan | 7.0% - 9.0% | 10-15 years | $50,000 | $580 - $700 |
Types of Loans Explained
Mortgage Loans
Purpose: Purchase or refinance real estate. Types: Fixed-rate (rate stays same), Adjustable-rate (ARM - rate changes), FHA (government-backed), VA (for veterans), Jumbo (over conforming limits). Key Features: Long terms (15-30 years), secured by property, tax-deductible interest (sometimes), requires down payment (3-20%).
Auto Loans
Purpose: Purchase vehicles. Types: New car loans (lower rates), Used car loans (higher rates), Lease buyouts, Refinancing. Key Features: Short terms (3-7 years), secured by vehicle, rates depend on credit and vehicle age, often offered through dealerships.
Personal Loans
Purpose: Consolidate debt, home improvements, medical expenses, weddings, etc. Types: Secured (backed by collateral), Unsecured (based on credit), Fixed-rate, Variable-rate. Key Features: No collateral required for unsecured, quick funding, higher rates than secured loans.
Student Loans
Purpose: Education expenses. Types: Federal (government-backed, income-driven repayment), Private (from banks/lenders), Parent PLUS. Key Features: Deferred payments while in school, income-based repayment options, potential forgiveness programs.
Business Loans
Purpose: Start, expand, or operate business. Types: Term loans, SBA loans, Equipment financing, Lines of credit. Key Features: Require business plan, often need personal guarantee, rates vary by business credit.
Key Loan Characteristics
| Feature | Secured Loans | Unsecured Loans |
|---|---|---|
| Collateral Required | Yes (house, car, etc.) | No |
| Interest Rates | Lower (4-8%) | Higher (8-36%) |
| Loan Amounts | Higher | Lower |
| Terms | Longer (up to 30 years) | Shorter (1-7 years) |
| Approval Time | Slower (weeks) | Faster (days) |
| Risk to Borrower | Could lose collateral | No asset risk |
| Examples | Mortgages, auto loans | Personal loans, credit cards |
Loan Payment Formula & Amortization
The Standard Loan Payment Formula
M = P [ r(1+r)^n ] / [ (1+r)^n - 1 ]
Where:
- M = Monthly payment
- P = Principal loan amount (after down payment)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (term in years × 12)
P = 250,000, r = 0.065/12 = 0.0054167, n = 30×12 = 360
M = 250,000 × [0.0054167(1.0054167)^360] / [(1.0054167)^360 - 1]
M = 250,000 × [0.0054167 × 10.9357] / [10.9357 - 1]
M = 250,000 × 0.059213 / 9.9357 = $1,580.17/month
How Amortization Works
Early Payments: Mostly interest. Month 1: $1,580 payment = $1,354 interest, $226 principal.
Middle Payments: Balance shifts. Year 15: $1,580 payment = $786 interest, $794 principal.
Late Payments: Mostly principal. Final payment: $1,580 = $8 interest, $1,572 principal.
Total Cost Calculation
Total Paid = Monthly Payment × Number of Payments
Total Interest = Total Paid - Principal
Impact of Extra Payments
Extra payments go directly to principal, reducing future interest. Formula for new payoff time after extra payments requires recalculating amortization schedule with reduced principal.
Compare Different Loan Options
15-Year vs 30-Year Mortgage
$300,000 at 6.5%
30-Year: $1,896/month, Total: $682,632, Interest: $382,632
15-Year: $2,613/month, Total: $470,340, Interest: $170,340
Savings: Pay $717 more/month but save $212,292 in interest!
New vs Used Car Loan
$30,000 at Different Rates
New (5%): $566/month, Total: $33,960, Interest: $3,960
Used (8%): $608/month, Total: $36,480, Interest: $6,480
Difference: $42/month more, $2,520 more interest over 5 years
Key Comparison Metrics
| Metric | What It Measures | Why It Matters |
|---|---|---|
| Monthly Payment | Cash flow impact | Can you afford it within your budget? |
| Total Interest | Cost of borrowing | How much extra you pay for the loan |
| APR vs Interest Rate | True cost including fees | APR includes origination fees, points, etc. |
| Loan Term | Payoff timeline | Shorter = less interest but higher payments |
| Amortization Schedule | Principal/interest split over time | Shows when you build equity vs pay interest |
| Total Cost of Loan | Principal + interest + fees | True price of what you're buying |
Loan Management Strategies
Before Taking a Loan
- Check your credit score: Higher score = lower rates. Aim for 740+ for best rates.
- Shop around: Get quotes from 3-5 lenders. Even 0.25% difference saves thousands.
- Calculate true affordability: Include insurance, taxes, maintenance for houses/cars.
- Save for larger down payment: 20% avoids PMI on mortgages, gets better rates.
- Consider total cost, not just monthly payment: Longer term = lower payment but more interest.
During the Loan
- Make extra payments: Even $50/month extra cuts years off mortgage.
- Pay biweekly instead of monthly: 26 biweekly payments = 13 monthly payments/year.
- Target high-interest debt first: Pay minimum on low-rate loans, extra on high-rate.
- Refinance when rates drop: Rule of thumb: Refinance if rate drops 1%+.
- Never skip payments: Late fees hurt, and it damages credit score.
Special Strategies by Loan Type
Mortgages: Make one extra payment/year. Round up payments ($1,580 → $1,600). Refinance to shorter term when possible.
Auto Loans: Make larger down payment. Choose shorter term if affordable. Pay off before trading in.
Student Loans: Use income-driven repayment if struggling. Consider consolidation. Explore forgiveness programs.
Personal Loans: Use for debt consolidation at lower rate. Pay off highest-rate credit cards first.
Frequently Asked Questions
Should I choose 15-year or 30-year mortgage?
15-year: Build equity faster, pay less interest (saves $100,000+), forced savings, but higher payments (40-50% higher). 30-year: Lower payments (easier to afford), flexibility to invest difference, tax deduction benefit longer. Best of both: Get 30-year but make extra payments like it's 15-year.
How much house can I afford?
28/36 Rule: Mortgage ≤ 28% of gross income. Total debt ≤ 36% of gross income. Example: $100,000 income = $2,333/month max for mortgage + $3,000/month max for all debt. Better approach: Budget based on take-home pay, not gross. Include taxes, insurance, maintenance (1-2%/year of home value).
What's better: lower rate or shorter term?
Usually shorter term saves more money, even with similar rate. Example: $200,000 at 6%: 30-year = $231,676 interest, 15-year = $103,788 interest (saves $127,888). But ensure you can afford higher payment. Run both scenarios through calculator.
How do extra payments work?
Extra payments reduce principal immediately. This reduces future interest calculations. $100 extra/month on $250,000 mortgage at 6.5% saves $52,000 interest and pays off 5.5 years early. Always specify "apply to principal" when making extra payments.
Should I pay off loans early or invest?
Compare rates: If loan rate > expected investment return, pay off debt. If investment return > loan rate, invest. Example: 4% mortgage vs 7% stock market average = invest. 8% credit card debt vs 7% stock market = pay debt. Also consider risk tolerance and peace of mind.
What credit score do I need for best rates?
Mortgage: 740+ for best rates, 620 minimum for conventional. Auto: 720+ for best, 660+ for good. Personal loans: 720+ for best, 580+ for some lenders. Student loans: Federal loans don't require credit check (except PLUS).
How does refinancing work?
Replace existing loan with new one, usually to get lower rate, change term, or cash out equity. Costs 2-5% of loan amount in fees. Break-even point = when savings exceed costs. Generally worth it if rate drops 1%+ and you'll stay in home long enough to recoup costs.
What is PMI and how do I avoid it?
Private Mortgage Insurance required when down payment < 20%. Costs 0.5-1% of loan/year. Avoid by putting 20% down, using piggyback loan (80-10-10), or choosing lender-paid PMI (higher rate). PMI automatically cancels at 78% loan-to-value ratio.
Loan Terminology Glossary
| Term | Definition | Why It Matters |
|---|---|---|
| Principal | Amount borrowed | The actual money you receive |
| Interest Rate | Cost of borrowing as % | Determines monthly payment and total cost |
| APR | Annual Percentage Rate | Includes interest + fees = true cost |
| Amortization | Gradual repayment schedule | Shows principal/interest split over time |
| Term | Length of loan | Affects payment amount and total interest |
| Equity | Value minus loan balance | Your ownership stake in the asset |
| PMI | Private Mortgage Insurance | Extra cost if down payment < 20% |
| Escrow | Account for taxes/insurance | Part of monthly payment for these costs |
| Points | Upfront fee to lower rate | 1 point = 1% of loan amount |
| Fixed vs Variable Rate | Rate stays same vs changes | Fixed = predictable, Variable = can go up/down |
| Prepayment Penalty | Fee for paying off early | Check before making extra payments |
| Debt-to-Income Ratio | Monthly debt ÷ monthly income | Key factor lenders consider |
| Closing Costs | Fees to originate loan | 2-5% of loan amount for mortgages |
| LTV (Loan-to-Value) | Loan ÷ property value | Lower LTV = better rates, no PMI at 80% |
| DTI (Debt-to-Income) | Total debt ÷ gross income | Most lenders want ≤ 36% |