How loan payments work

A fixed-rate loan is amortizing: you pay the same amount every month, but the split between interest and principal shifts over time. Use the loan payment calculator to see your numbers, then read on for the why.

The three inputs that matter

• Principal — the amount you borrow.
• Interest rate — the annual cost of borrowing, applied monthly.
• Term — how many years you take to repay.

Why early payments feel like they do nothing

Interest is charged on the remaining balance, which is largest at the start. So early payments are mostly interest; only later do they chip away at principal. A shorter term means higher monthly payments but far less total interest.

Rule of thumb

Lowering your rate or shortening your term reduces total interest the most. Compare offers on our best lenders page before you commit.

Educational only — not financial advice.