What will this loan really cost?
Lenders quote a monthly payment, which tells you what you can afford but not what the loan costs. See the payment, the total interest, and what paying extra saves.
The payment is set by amount, rate and term, sized so equal monthly amounts cover interest on the remaining balance plus enough principal to clear the loan on time. Total interest is every payment added up, minus what you borrowed.
The math
How this works
How is a monthly loan payment calculated?
A term loan payment is built so the same amount each month covers that month's interest plus enough principal to bring the balance to zero on the final payment. Interest is charged on what you still owe, so in the early months most of the payment is interest and only a little reduces the balance. As the balance falls, the interest portion shrinks and more of each payment goes to principal. That is why the principal you retire in year one is noticeably less than the loan amount divided by the number of years.
Does paying extra on a business loan save money?
Usually, yes. Extra money goes against the principal, so the balance interest is charged on next month is smaller, and every month after that is cheaper too. The effect builds on itself, which is why a modest extra amount can take months off the term. Two things are worth confirming first: that your loan has no prepayment penalty, and that the lender applies extra money to principal rather than holding it toward your next scheduled payment. Ask for that in writing, or note it on the payment itself.
What is the difference between an interest rate and an APR?
The interest rate is what the lender charges on the outstanding balance. The APR is meant to express the yearly cost of the loan including certain fees, which makes it the better number for comparing offers. A loan with a lower rate and heavy origination fees can carry a higher APR than one with a slightly higher rate and no fees. When you compare, ask each lender for the APR, the total of all payments, and a written list of every fee.
Questions people ask
What is a prepayment penalty?
It is a clause that charges you for paying the loan off early, usually to protect the interest the lender expected to earn. It may apply only in the first years or across the whole term. Check for it before you plan extra payments, because it can cancel out the savings.
Why is most of my early payment going to interest?
Because interest is charged on the balance you still owe, and that balance is at its highest in the first months. The payment amount stays the same, but the split shifts toward principal a little every month. By the end of the term almost all of each payment is reducing the balance.
Should I take a longer term for a lower payment?
A longer term lowers the monthly payment and raises the total interest, so it is a trade between monthly breathing room and total cost. If a shorter term would leave you short in a slow month, the longer term with extra payments when cash allows is often the more workable choice. Run both in the calculator and compare the two totals.
Does this calculator include fees?
No. It covers principal and interest on the amount you enter. Origination fees, closing costs and any insurance the lender requires are separate, so add them when you compare offers. The loan or line of credit tool includes fees if you want them in the picture.
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This is an estimate to help you think, not financial, tax or legal advice. Finli is not a bank and does not lend. Your own numbers, and your banker, beat any calculator.