How to Calculate Personal Loan Payments – Step by Step Guide

It is advised to understand how much you will have to pay each month in loan payments before taking a personal loan. It helps in better comparing deals from lenders and deciding which loan is the best fit. It’s possible to calculate personal loan payments on your own. Let’s learn!
how to calculate personal loan payments
How to Calculate Personal Loan Payments – Step by Step Guide
Before taking a personal loan, it is critical to know how much monthly payments you will have to make and if you budget will be able to handle the added expense. While determining the exact installment payments before taking the loan can be difficult, this guide will help you calculate loan payments every month.

In this article

A plethora of factors streamlined personal loans. Over the last decade, accessibility, flexibility, competitive interest rates, and their unsecured nature have emerged as the major factors. The sluggish economy, with a slow growth rate and escalating living costs, gave it the final push. To this day, people want an economical alternative to surging interest rates, particularly for credit cards, and options to merge all debts into a single loan. 

Personal loans have proven to be the wiser financial decision in each aspect. However, despite their apparent benefits, it is crucial to know how to calculate personal loan payments monthly, among other factors. Use the Beem app to compare different loan options with aspects like principal, the original loan amount, and interest, the cost of borrowing. You can use simple equations or a loan calculator to determine your monthly payments if you have all the information.

How Do Personal Loan Payments Work?

Though usually there are no latent factors in the terms and conditions of a personal loan that may later become a financial liability, it is prudent to understand the ins and outs of the payment layout and how they work. Understanding how personal loan payments work will also help you decide how much financial liability you can afford, whether the loan is less or more than what you need, and how to bridge the divide.

Consisting of three elements, the principal amount, the annual percentage rate (APR), and any applicable fees, personal loans and their payments are overall definitive. However, borrowers generally need to consider the annual percentage rate (APR) and other applicable fees, which creates a misunderstanding of the total payable amount. And as APR and additional fees are highly influenced by the current debt status of the borrower, their credit ratings, source(s) of the income, and even the discretion and working policies of the lenders, they can get even more confusing. 

The principal amount, which is also the basis for the loan, is the amount borrowed. The APR is the annualized interest rate which cumulates the base interest rate and any additional fees the lender charges. APR sums the total cost of borrowing over the loan term. And the fees include all payments beyond the interest rate the borrower must account for in the repayment plan. Fees generally vary among lenders and should be discussed uprightly while obtaining a personal loan. 

how do personal loan payments workss

Formula to Calculate Personal Loan Payments

Commonly known as the amortization or loan payment formula, the procedure to calculate personal loan payments is a simple mathematical formula. It enables borrowers to calculate their monthly installment amount while availing a loan. It is crucial, as knowing the fixed future liability aids the borrowers to decide what is affordable and what is not. If the amount is under or over budget, they can decrease or increase their installment numbers to facilitate their financial situation.  

The actual formula is:

P = (r * A) / (1 – (1 + r)^(-n))

In which:

  • P is the monthly payment
  • A is the loan amount (principal)
  • r is the monthly interest rate (annual interest rate divided by 12)
  • n is the actual number of monthly payments

However, this is the most basic formula, which assumes a fixed interest rate and equal monthly payments throughout the loan term. It doesn’t account for additional fees, prepayments, or any other factors that may affect the loan repayment amount.

How to Calculate Personal Loan Payments?

Although for an accurate calculation, it’s recommended to use specialized loan calculators or consult a financial professional. Use these steps to calculate personal loan payments manually:

  • Locate the requisite information about the loan, i.e., the principal amount, the annual interest rate, and the loan term.
  • Divide the annual interest rate by 12 and convert it to a monthly rate. Also, ensure that it is expressed as a decimal.
  • Now multiply the monthly interest rate by the principal amount to determine the monthly interest liability.

Monthly Interest = Loan Amount* Monthly Interest Rate

  • To determine the total number of installments to be paid, multiply the loan term in years by 12. 
  • Using the amortization formula, calculate the monthly installment amount.
How to Calculate Loan Payments (2)

How to Save Money on Personal Loan Payments?

Even though personal loans offer the lowest interest rates, you can still do much more to reduce the cost further and save money on loan payments. These productive ways will help you reduce the cost of loan payments:

Shop Around

Before finalizing, compare offerings from different lenders for the most favorable terms, lower interest rates, and lower fees. 

Work on Your Credit Score

A higher credit equals lower interest rates and even better and more lenient terms. Improve your credit score and maintain a low credit utilization ratio, as a low credit score can be a significant roadblock.

Maximize the Down Payment

Consider making a larger down payment when taking out a loan. A significant down payment reduces the principal amount, which, in turn, reduces the overall interest to be paid.

Reduce Loan Terms

Shorter loan terms generally offer low rates of interest. While the monthly payments may be higher, a shorter loan term will save you money by reducing the total interest paid.

Make Extra Payments

Consider making extra payments or paying off the loan ahead of schedule. Doing so can save on interest charges and shorten the loan term, resulting in the overall cost.

Negotiate with the Lender

It might sound unrealistic, but you can negotiate with lending companies for better loan terms, lower interest rates, or reduced fees in certain situations. The option is worth exploring, especially if you have a good payment history and a strong credit score.


The apparent benefits offered by personal loans have played a pivotal role in their widespread adoption. The ability to consolidate multiple debts, obtain lower rates than credit cards, and secure loans without collateral has positioned personal loans as a prudent financial decision. Beem will help in finding the best personal loan offers for you. Compare and see what works for you even before you click apply.

In this blog, we learned how to calculate personal loan payments and the opportunities provided by personal loans to make them a preferred choice for individuals looking to manage their finances effectively. However, amidst the allure of personal loans, it is vital to exercise caution and thoroughly evaluate the terms and conditions of the loan. It is crucial to understand the payment liabilities and have a comprehensive grasp of the loan’s intricacies. This will assist you in making well-informed decisions and ensure a sustainable financial outlook.

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Team Beem

Team Beem

Team Beem brings you the latest in the world of personal finance to you. From tips and tricks on how to manage money to how to get cash for emergencies, Beem is your destination for all the information you need to be smart about your money.

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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