How it works
A fixed-rate loan uses the standard amortizing-payment formula:
M = P × [ r(1 + r)n ] / [ (1 + r)n − 1 ]
- M = monthly payment
- P = principal (amount borrowed)
- r = monthly interest rate (annual rate ÷ 12)
- n = total number of payments (years × 12)
Each payment covers that month's interest first; the remainder reduces the balance, so interest shrinks and principal grows over time.
Worked example
Borrow $25,000 over 5 years at 9%:
- Monthly rate r = 0.09 / 12 = 0.0075
- Payments n = 60
- Monthly payment M ≈ $519
- Total interest ≈ $6,137