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How to Calculate Your Personal Loan: Monthly Payments and Total Cost

Obtaining a personal loan requires a thorough comprehension of the financial obligation you are undertaking. Crunching the numbers for your personal loan can assist in figuring out the monthly payments and the overall cost throughout the loan’s duration. This data is essential for effective budgeting, ensuring that the loan is in harmony with your financial objectives. Below is a detailed walkthrough on calculating your personal loan, complemented by free budgeting sheets to facilitate the process:

1. Gather Loan Information

Before you begin the calculation, gather the necessary information about your personal loan. Key details include:

Loan Amount: The total amount you’re borrowing.

Interest Rate: The annual interest rate, expressed as a percentage.

Loan Term: The number of months or years over which you’ll repay the loan.

2. Understand Loan Terms

It’s essential to understand the terms used in personal loan calculations:

Principal: The original amount of money borrowed.

Interest: The amount charged by the lender for the use of the borrowed money.

Term: The length of time over which the loan will be repaid (in months or years).

3. Use the Loan Payment Formula

The most common formula for calculating the monthly payment on a personal loan is the loan payment formula, also known as the amortization formula. The formula is as follows:

M=P× (1+r) n −1r(1+r) n ​


  • M is the monthly payment.
  • P is the loan amount (principal).
  • r is the monthly interest rate (annual rate divided by 12 and expressed as a decimal).
  • n is the total number of payments (loan term in months).

4. Calculate Monthly Payments

Plug in the values for P, r, and n into the formula, and calculate the monthly payment. Here’s an example:

P = $10,000

r= 120.06​  (for a 6% annual interest rate) ​

n=36 (for a 3-year term)

M=10000× (1+0.005) 36 −10.005(1+0.005) 36 ​

Calculate M using the formula. In this example, the monthly payment (M) is approximately $304.29.

5. Determine Total Repayment

To find the total cost of the loan, multiply the monthly payment by the total number of payments. Using the example:

Total Repayment=M×n

\text{Total Repayment} = $304.29 \times 36

In this case, the total repayment is approximately $10,973.24.

6. Assess Affordability

Consider whether the calculated monthly payment fits into your budget. If the monthly payment seems too high, you may explore extending the loan term, although this will increase the total cost. Alternatively, you could adjust the loan amount or seek a lower interest rate.


Calculating your personal loan provides valuable insights into the financial commitment you’re making. By understanding the monthly payments and total cost, you can make informed decisions about your loan and ensure that it aligns with your financial goals and capabilities.

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