How to calculate an installment loan payment

How to calculate an installment loan payment

Construction loans are relatively simple in theory, but tend to be much more complex in implementation. To help your budget calculations, this article will explain how they work and how to calculate construction loan payments during the construction period. Most construction loans require interest only payments during the construction time frame and will adjust to include principal, also, after full dispersal.

Step 1

Review your construction loan disbursement schedule. Some lenders prefer – or may mandate – simplicity (it's less work for them). This may or may not be good for you, too. They may establish only three equal disbursements (30%) with a 10% "hold back" to be paid after a final inspection. Other lenders will allow you to set a schedule that works for you and may include five, six, or more disbursement amounts. This gives you access to funds to pay subcontractors and other charges more frequently. Understanding your disbursement schedule helps you estimate and/or calculate your coming construction loan payments.

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Step 2

Learn when construction loan disbursements are posted to your outstanding balance and when payments are due during the construction period. For example, a disbursement made during the last three to five days of a given month may or may not be posted to your loan balance and require interest thereon for your next payment. The loan terms regarding disbursement posting affect your loan payment calculation.

Step 3

Divide your construction loan interest rate by 365 (or 360, if your lender uses 30-day months for calculation). The resulting number (percentage) is your "per diem" (daily) interest rate. If you have a variable interest rate per your construction loan note, always verify the current month's rate before calculating your per diem rate.

Step 4

If there have been no new disbursements in the current month, take your outstanding balance at month's end and multiply it by your per diem interest rate and then by the number of days in the current month (or 30 if your lender uses equal days months). An interest-only construction loan will require this payment as it shows interest due based on your loan balance and the number of days you had "use" of these funds.

Step 5

If you had a balance on day one of the month and had another disbursement during the month, calculate your construction loan payment by doing the following. Multiply your outstanding balance on day one by the per diem rate for the total days in the month. Multiply the new disbursement by the per diem rate and the number of days between disbursement date and the end of the month. Add the two interest charges together, and you've calculated the expected construction loan payment for the current month.

Step 6

After the construction period ends (usually six months), your lender should provide you with a payment schedule going forward that includes principal and interest. Some lenders will convert your construction loan to "permanent" financing – a mortgage loan. Others, will expect you to obtain a new mortgage loan with your current or another lender as quickly as possible so they can "retire" the construction loan off their books, since it was always meant to be temporary financing.

Keep your own running total of disbursement amounts and dates so you can verify that your lender's records are correct. If you are unsure of your per diem interest rate, ask your lender for verification. If the rates and amounts differ slightly (by a few minor points or pennies), don't worry as the number of places to the right of the decimal point may differ between you and the lender calculations.


If you need to get permanent financing shortly after the construction period ends, don't wait until the end of the project to make a mortgage loan application as it could take up to 60 days to close the new loan. Assume nothing in addition to the specifically stated terms in your construction loan note regarding disbursements, interest rates, payment due dates, and appropriate calculations to arrive at payment amounts.

On This Page, You can easily know about How To Calculate An Installment Loan Payment.

An installment payment, such as that paid monthly on a loan, is paid out to the lender with interest charges and finance fees also included. Typically, monthly installment loans are for larger purchases like appliances, cars, or other large asset purchases. The payments are calculated using the Equal Monthly Installment (EMI) method. It is simple to apply and you can use online calculators, a spreadsheet program such as Excel, or do it by hand.

Table of Contents

What is an EMI?

A loan is a financial agreement between two parties, a lender and a borrower. Under this agreement, the lender gives a specific amount of money to the borrower with the intent that the amount borrowed is paid back with interest as monthly installments over a predetermined period of time by the borrower. Using an EMI calculator is the easiest way to determine your monthly payouts and balance your budget accordingly. Everyone has to borrow a loan at some point in time in their life whether for buying a car or a house, funding their child’s education or consolidating debts, etc. Thus, loans have become an important part of everyone’s life in today’s times. Loans can be availed for various purposes, but the key components on loans are always the same, namely – loan amount, loan tenure and interest rates.

What is a Loan EMI Calculator?

EMI is the payment which the borrower makes every month towards loan repayment of the loan. EMI constitutes the principal amount along with the accrued interest. You can use the EMI calculator to calculate your monthly loan EMI payouts. The borrower just needs to enter the variables of the loan such as the principal amount, tenure and interest rate and it instantly fetches an result which is the EMI. Calculating EMI using the online EMI calculator is easy and you get to know your loan EMI in seconds. Paisabazaar’s online loan EMI calculators are available 24*7 without any cost! So calculate or compare various loan EMIs any number of times you wish to, for free.

Calculating the Payment by Hand

Understand what that number means. In this example, the formula resulted in a payment of $109.66. That means you would make 36 equal payments of $109.66 for a loan of $3,500 at an 8% interest rate based on our example. Try changing some numbers in order to understand the impact of different interest rates or term length of the loan on the monthly payment amount.

Using Excel

Identify your loan information. This is part of any method used to calculate a payment for an installment loan. You will need to know the total amount financed or principal, the number of payments and the interest rate. Write these down or enter them into cells in Excel to use later.

Finding an Online Calculator

Locate the required information. Each one works a bit differently, but they will all ask for the same information. The interest rate, loan amount and number of payments are listed in the loan documents.

If you are estimating payments for a loan you are considering, many of the sites also include probable interest rates for that type of loan.

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An installment loan is money you borrow in a lump sum and repay in fixed payments over a few months or years. An installment loan calculator can help you see how much those monthly payments might be.

Use this installment loan calculator to see your monthly payments based on the loan's annual percentage rate and term.

How to use this calculator

Loan amount ($): Enter the amount of money you plan to borrow, before adding interest.

Est. APR (%): Enter the annual percentage rate you expect to receive. This is the loan’s interest rate, plus any fees the lender charges.

Loan term (years): Enter the loan’s repayment term in years.

Installment loan calculator

Key terms to know about personal loans

Annual percentage rate is the interest rate on your loan plus all fees, calculated on an annual basis and expressed as a percentage. Use the APR to compare loan costs from multiple lenders.

An origination fee is a one-time, upfront fee that some lenders charge for processing a loan. The fee can range from 1% to 10% of the loan amount, and lenders typically deduct it from your loan proceeds.

The debt-to-income ratio divides your total monthly debt payments by your gross monthly income, giving you a percentage. Lenders use DTI — along with credit history and other factors — to evaluate a borrower's financial ability to repay a loan.

Lenders that offer pre-qualification typically do so using a soft credit check , which allows you to see rates and terms you qualify for without affecting your credit score. If you accept the loan offer, the lender will perform a hard check to confirm your information. Hard checks knock a few points off your credit score.

How loan terms and rates affect monthly payments

Your interest rate and loan term directly affect how much you pay toward your loan each month. Here’s how:

Rate: A higher interest rate means you’ll pay more each month and in total interest. With personal loans, many online lenders let you pre-qualify to find the lowest rate without affecting your credit score.

Term: Adjusting the loan’s repayment term will change your monthly payment, number of payments and total interest. A longer repayment term lowers your monthly payments but increases the total interest cost.

Where to get an installment loan

Personal installment loans are available at banks, credit unions and online lenders. The best loan rates are reserved for borrowers with good or excellent credit, high incomes and little existing debt, but you can still find installment loans for bad credit .

Installment loans for bad credit

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How to calculate an installment loan payment

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This loan calculator will help you determine the monthly payments on a loan. Simply enter the loan amount, term and interest rate in the fields below and click calculate. This calculator can be used for mortgage, auto, or any other fixed loan types.

Without taking out loans, many of us would not be able to buy a home, a car or afford a higher education. The fact is, mortgages, auto loans and other types of loans can help us to advance and reach important goals in our lives.

The cost of a loan depends on the type of loan, the lender, the market environment and your credit history and income. Borrowers with the best credit profile usually get the best interest rates. Before you shop for a loan, find out your credit score and look at your credit report to make sure it’s accurate. You can get your credit report and credit score for free on Bankrate.

All loans are either secured or unsecured. A secured loan requires the borrower to put up an asset as collateral to secure the loan for the lender. An auto loan is an example of a secured loan. If you don’t make your car payments, the lender will repossess the car. An unsecured loan requires no collateral. Most personal loans are unsecured.

While shopping for any loan, it’s a good idea to use a loan calculator. A calculator can help you narrow your search for a home or car by showing you how much you can afford to pay each month. It can help you compare loan costs and see how differences in interest rates can affect your payments, especially with mortgages.

The right loan calculator will show you the total cost of a loan, expressed as the annual percentage rate, or APR. Loan calculators can answer a lot of questions and help you make good financial decisions.

Here are some details about the most common types of loans and the loan calculators that can help you in the process.


Bankrate’s mortgage calculator gives you a monthly payment estimate after you input the home price, your down payment, the interest rate and length of the loan term. Use the calculator to price different scenarios. You might discover you need to adjust your down payment to keep your monthly payments affordable. You can also see the loan amortization schedule, or how your debt is reduced over time with monthly principal and interest payments. If you want to pay off a mortgage before the loan term is over, you can use the calculator to figure out how much more you must pay each month to achieve your goal.

Other mortgage calculators can answer a variety of questions: What is your DTI, or debt-to-income ratio? That’s a percentage that lenders look at to gauge your debt load. Should you take out a 15-year mortgage or a 30-year? Fixed interest rate or variable?

It’s critical to nail down the numbers before buying a home because a mortgage is a secured loan that is secured by the home itself. If you fail to make the monthly payments, the lender can foreclose and take your home.

Home equity loan

Home equity loans, sometimes called second mortgages, are for homeowners who want to borrow some of their equity to pay for home improvements, a dream vacation, college tuition or some other expense. A home equity loan is a one-time, lump-sum loan, repaid at a fixed rate, usually over five to 20 years. Bankrate’s home equity calculator helps you determine how much you might be able to borrow based on your credit score and your LTV, or loan-to-value ratio, which is the difference between what your home is worth and how much you owe on it.

Home equity line of credit (HELOC)

A HELOC is a home equity loan that works more like a credit card. You are given a line of credit that can be reused as you repay the loan. The interest rate is usually variable and tied to an index such as the prime rate. Our home equity calculators can answer a variety of questions, such as: Should you borrow from home equity? If so, how much could you borrow? Are you better off taking out a lump-sum equity loan or a HELOC? How long will it take to repay the loan?

Auto loan

An auto loan is a secured loan used to buy a car. The auto loan calculator lets you estimate monthly payments, see how much total interest you’ll pay and the loan amortization schedule. The calculator doesn’t account for costs such as taxes, documentation fees and auto registration. Plan on adding about 10 percent to your estimate.

Student loan

A student loan is an unsecured loan from either the federal government or a private lender. Borrowers must qualify for private student loans. If you don’t have an established credit history, you may not find the best loan. Bankrate’s student loan calculator will show you how long it will take to pay off your loan and how much interest it will cost you. The college savings calculator will help you set savings goals for the future.

Personal loan

A personal loan is an unsecured, lump-sum loan that is repaid at a fixed rate over a specific period of time. It is a flexible loan because it can be used to consolidate debt, pay off higher-interest credit cards, make home improvements, pay for a wedding or a vacation, buy a boat, RV or make some other big purchase. The personal loan calculator lets you estimate your monthly payments based on how much you want to borrow, the interest rate, how much time you have to pay it back, your credit score and income.

If you have good to excellent credit, aren’t weighed down by a lot of debt and have assets or a steady income, you can probably qualify for most any type of loan. Use loan calculators to answer your questions and help you shop and compare so that you get the best loan at the best price and terms for your budget.

If you’re paying off an installment loan or lending somebody money they can pay off in installments, you’ll want to figure out the appropriate monthly installment payment so that the loan can be paid off in full at the end of the loan period. You can use a standard installment calculation to do so. If you have trouble paying off a loan on time, you can try to work with the lender to modify the loan terms or extend the payment period.

Understanding Monthly Installment Payments

Many loans that you take out are designed to last for a set amount of time. This includes mortgages used to buy real estate, auto loans used to buy cars and various types of consumer loans. These types of loans are sometimes known as installment loans and each payment that you make under the loan terms is known as an installment payment. Typically you will make a payment on the loan each month, and this payment is usually designed to be the same over the life of the loan to make repayment predictable.

If a loan didn’t include interest, it would be simple to calculate the monthly payment plan for the loan. You could simply divide the amount borrowed by the number of months you have to pay off the loan and pay that fraction of the loan every month. While this might work fine for interest-free loans between friends or family, it’s not viable for commercial loans, where lenders must charge interest to make money and offset their own risk.

For installment loans that charge interest, you must use a more complex formula to figure out the monthly installment payment based on the amount borrowed, the interest rate and the repayment period.

Credit cards and many lines of credit work differently from installment loans, because you’re able to borrow more money up to a spending limit at any time. However, if you decide to stop spending money on a credit card and seek to pay it off over a given period of time, you can use the installment payment formula to decide how much to pay each month over that time period.

The Installment Loan Payment Formula

You can use a standardized formula to figure out the appropriate monthly installment period on an installment loan. This formula is:

P = r(V) / (1 – (1 + r) -n )

The formula may look a bit complicated, but it’s easy to compute with a calculator if you have all of the data needed. The variable P represents the payment amount you’re trying to compute. The variable r is the monthly interest rate on the loan, V is the initial principal amount borrowed and n is the number of months you have to pay off the loan. If you are paying on a schedule other than monthly, use that amount of time rather than months to compute the formula.

If you have an annual interest rate rather than a monthly one, divide it by 12 to find the monthly rate, since there are 12 months in a year.

If you’d rather not apply the formula directly, you can use various online calculator tools to compute the amount owed per month. You can also use the Microsoft Excel function PMT to find the monthly payment without having to do the math yourself.

Handling Installment Loan Payment Issues

If you find you can’t keep up with the payments on an installment loan or any other loan, you may be able to negotiate with the lender for a longer payment schedule or some other loan modification. Keep in mind that if you make less than the required payments on a loan or stop paying, it may affect your credit rating or your ability to borrow in the future.

For example, there may be a Fannie Mae loan modification waiting period before you can take out another mortgage backed by the organization after a negative credit event.

An installment loan is a loan that you pay off in a steady number of same-size payments over a fixed period of time. The size of each payment is determined so that the loan is paid off at the end of the loan period. Ordinarily, your lender will tell you the amount that you need to pay each month, but if you need to calculate this number yourself, you can do so using a relatively simple mathematical formula, an online calculator tool or a spreadsheet function.

What’s an Installment Account?

An installment loan is one that you pay off over time, usually making the same payment each month for a fixed number of months. Many loans operate this way, including many mortgages that you use to buy houses and real estate and many auto loans that you use to buy vehicles. Some consumer loans also work this way, such as loans you take out to buy appliances or other household goods. Typically, you must make a payment on an installment loan each month, but they can have other periods as well where you must make payments.

An installment loan differs from a revolving credit account, such as a credit card or certain personal and business lines of credit that let you borrow money up to a credit limit and pay it off at a schedule of your choice. If you stop borrowing money on a revolving credit account and resolve to pay it off through fixed payments over a certain amount of time, it will effectively function like an installment loan.

Generally, a lender will tell you how much you owe each month, but if you want to verify this number or you have lent someone money and want to tell them how much to pay you each month, you can use a standard installment loan formula to determine the monthly payment for the installment loan.

Understanding the Installment Formula

Assuming you have an installment loan where you know the principal, or initial amount borrowed, and the interest rate and the number of months to pay off the loan, you can use the installment payment formula to figure out how much you must pay each month.

The formula looks like:

P = r (V) / (1 – (1 + r) -n )

where P is the monthly payment, V is the amount borrowed, r is the monthly interest rate and n is the number of months to pay off the loan. If you only have an annual interest rate, as is published for many loans, divide it by 12 to find the monthly interest rate, since there are 12 months in a year. You can compute the formula using a physical or online calculator or with a spreadsheet program.

Note that the formula doesn’t work for interest-free loans since it will result in dividing by zero. For a no-interest loan, you can simply divide the principal amount by the total number of months to pay off the loan and pay that amount each month.

Installment Loan Payment Calculator Tools

If you don’t want to plug numbers into the formula directly, you can find many online installment loan payment calculator tools that will do it for you. Simply enter the numbers for the interest rate, the number of payment periods and principal to compute the monthly payment.

If you use Microsoft Excel, the popular spreadsheet tool, you can also use the built-in formula function called PMT to compute the payment amount. This function is also included in other popular spreadsheet programs, including Google Sheets. Read your spreadsheet program’s manual to see the details of how its version of PMT works.

  • BankRate: Loan Calculator
  • ExcelJet: Calculate Payment for a Loan
  • Microsoft: PMT Function
  • Google: PMT
  • Finance Formulas: Loan Payment
  • CFPB. “What Is a Payday Loan?” Accessed Sept. 18, 2020.

Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.

How to calculate an installment loan payment

Almost every large business borrows money. The team leader for borrowings is normally the treasurer. The treasurer must safeguard the firm’s cash flows at all times, as well as understand and manage the impact of borrowings on the company’s interest costs and profits. So treasurers need a deep and joined-up understanding of the effects of different borrowing structures, both on the firm’s cash flows and on its profits. Negotiating the circularity of equal loan instalments can feel like being lost in a maze. Let’s take a look at practical cash and profit management.


Say we borrow £10m in a lump sum, to be repaid in annual instalments. Obviously, the lender requires full repayment of the £10m principal (capital) borrowed. They will also require interest.

Let’s say the rate of interest is 5% per year.

The first year’s interest, before any repayments, is simply the original £10m x 5% = £0.5m

The expense charged to the income statement, reducing net profits for the first year, is £0.5m.

But the next year can start to seem complicated.


Our instalment will repay some of the principal, as well as paying the interest. This means the second year’s interest charge will be less than the first, because of the principal repayment. But what if we can’t afford larger instalments in the earlier years? Can we make our total cash outflows the same in each year? Is there an equal instalment that will repay just the right amount of principal in each year, to leave the original borrowing repaid, together with all of the reducing annual interest charges, by the end?


Help is at hand. There is, indeed, an equal instalment that does just that, sometimes called an equated instalment. Equated instalments pay off varying proportions of interest and principal within each period, so that by the end, the loan has been paid off in full.

The equated instalments deal nicely with our cash flow problem, but the interest charges still seem complicated.

Equated instalment

An instalment of equal value to other instalments.

Equated instalment = principal ÷ annuity factor


As we’ve seen, interest is only charged on the reducing balance of the principal. So the interest charge per period starts out relatively large, and then it gets smaller with each annual repayment.

The interest calculation is potentially complicated, even circular, because our principal repayments are changing as well. As the interest element of the instalment goes down each year, the balance available to pay off the principal is going up every time.

How can we figure out the varying annual interest charges? Let’s look at this example:

Southee Limited, a construction company, is planning to acquire new earth-moving equipment at a cost of £10m. Southee is considering a bank loan for the full cost of the equipment, repayable over four years in equal annual instalments, incorporating interest at a rate of 5% per annum, the first instalment to be paid one year from the date of taking out the loan.

You need to be able to calculate the annual instalment that would be payable under the bank loan, calculate how much would represent the principal repayment and also how much would represent interest charges, in each of the four years and in total.

In other words, you need to be able to work out these five things:

(1) The annual instalment

(2) Total principal repayments

(3) Total interest charges

(4) Interest charges for each year

(5) Principal repayments in each year


The best place to start is with the annual instalment. To work out the annual instalment we need an annuity factor. The annuity factor (AF) is the ratio of our equated annual instalment, to the principal of £10m borrowed at the start.

The annuity factor itself is calculated as:

AF = (1 – (1+r) -n ) ÷ r

r = interest rate per period = 0.05 (5%)

n = number of periods = 4 (years)

Applying the formula:

AF = (1 – 1.05 -4 ) ÷ 0.05 = 3.55

Now, the equated annual instalment is given by:

Instalment = Principal ÷ annuity factor = £10m ÷ 3.55 = £2.82m


The total of the principal repayments is simply the total principal originally borrowed, ie £10m.


The total of the interest charges is the total of all the repayments, minus the total principal repaid. We’re only paying principal and interest, so any amount paid that isn’t principal, must be interest.

There are four payments of £2.82m each.

So the total repayments are: £2.82m x 4 = £11.3m

And the total interest charges for the four years are: £11.3m less £10m = £1.3m

Now we need to allocate this £1.3m total across each of the four years.


The allocations are easier to figure out in a nice table. Let’s invest a little time in one, filling in the figures we already know. (All amounts are in £m.)

The closing balance for each year will be the opening balance for the next year.

By the time we get to the end of the fourth year, we’ll have repaid the whole of the £10m originally borrowed, together with a total of £1.3m interest.


We can now fill in the 5% interest per year, and all our figures will flow through nicely.

We’ve already calculated the interest charge for the first year:

So our closing balance for the first year is:

Opening balance + interest – instalment = 10.00 + 0.5 – 2.82 = £7.68m

So we can go on to fill in the rest of our table, as set out below:

(There is a minor rounding difference of £0.01m in year four that we don’t need to worry about. It would disappear if we used more decimal places.)

Find out if you can afford to take out that short-term loan.

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When your credit prevents you from qualifying for a traditional personal loan, an installment loan might be your only option when you need money fast. But with APRs in the triple digits, it can mean paying back double or even triple what you borrowed.

Before taking out an installment loan, use our calculator to ensure you can afford the monthly repayments. If not, you might want to continue comparing lenders to find one that better fits your budget.

Installment loan repayment calculator

Fill out the form and click on “Calculate” to see your estimated monthly payment.

Based on your loan terms.

This breaks down to.

How to use this installment loan calculator

  1. Type in how much you want to borrow under Loan amount.
  2. Enter your loan term in years (not months) under the Loan terms field.
  3. Enter the loan’s interest rate if it doesn’t come with any fees under Interest rate. If your loan does come with fees, enter the annual percentage rate (APR), which includes interest and fees combined.
  4. Click Calculate.
  5. Review your results.

Not only will our calculator show you how much you’ll pay each month, but also how much you’ll pay in interest over your entire loan term.

Compare installment loans

We update our data regularly, but information can change between updates. Confirm details with the provider you’re interested in before making a decision.

Bottom line

When you’re in a tight spot and need money fast, knowing how much you’ll pay both monthly and overall is crucial when picking an installment loan you can afford. You can learn more about how to compare lenders with our guide to installment loans.

Need to calculate something different? Check out our full list of personal finance calculators.

Frequently asked questions

Will installment loans hurt my credit?

They could. Your credit score may drop if an installment lender does a hard credit check after you apply for a loan. And if you don’t make repayments on time, then your credit score will likely drop substantially as well.

Is it better to take out a payday loan or an installment loan?

The general rule of thumb is that payday loans are best if you need to borrow a smaller amount — $500 or less — and can afford to pay it back in less than a month. Meanwhile, an installment loan is better if you need to borrow a larger amount and need more time to pay it off.

Can I go to jail for not paying an installment loan?

No. According to federal law, you can’t be sent to jail or prison for unpaid debt. If a debt collector threatens to have you arrested for not making repayments, they’re acting illegally.

Ezra Wolfgang

Ezra Wolfgang is a graduate publisher for Finder, helping readers compare providers to choose the best for their needs. Prior to joining Finder, Ezra interned on the assignment desk at ABC News in New York, where he helped find, develop and write breaking news stories. Ezra earned a BA in media studies from Hunter College, where he took a healthy dose of courses in film/documentary production, print and digital reporting and studio television. In his spare time, Ezra goes on the occasional run, takes photos, writes scripts and shoots his own tiny, short films.

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