Loan Interest Calculator Understand how interest accrues, compare loan types, and find ways to minimize total interest pa...
Loan Interest Calculator
Understand how interest accrues, compare loan types, and find ways to minimize total interest paid.
Simple Interest: $$I = P \times r \times t$$ Common for short-term loans, T-bills, and some auto loans. Interest accrues only on principal.
Amortized Interest: Each payment = Interest + Principal. Early payments: mostly interest. Later payments: mostly principal. → Why extra payments early save the most.
Rule of 78s (Precomputed): Front-loads interest using the sum of digits (e.g., 24 months = 1+2+...+24 = 300). Month 1 interest = 24/300 of total interest. ⚠️ Early payoff still costs most interest.
⚠️ Avoid these high-interest structures:
- Rule of 78s loans: Common in subprime auto/toy loans. Example: $12K loan @ 12% for 24 mo → $1,540 interest. Pay off at month 12 → still owe **$1,120 interest** (73% of total)!
- Negative Amortization: Payment < interest → balance grows.
- 360-day year (Banker’s Year): Charges 365/360 = 1.014× more interest.
- Teaser Rates: Low intro APR, then jumps (e.g., 3% → 24.99% personal loans).
✅ Ask lenders: “Is this a simple interest loan? Do you use 365/360?”
| Loan | Interest Paid | Interest/Principal |
|---|---|---|
| $300K 30-yr @ 6.8% | $402,000 | 134% |
| $25K auto @ 7.2% (5 yr) | $5,200 | 21% |
| $20K personal @ 15% (3 yr) | $4,900 | 25% |
| $12K R78 @ 12% (24 mo) | $1,540 | 13% |
📉 Interest-Saving Tactics: • **Bi-weekly payments**: Save 12–18% interest on mortgages • **1 extra payment/year**: Cuts 30-yr mortgage to ~24 years • **Refinance to 15-yr**: Often saves 40–60% total interest vs. 30-yr
➡️ Amortized Loan
See interest schedule for mortgages, auto, or personal loans. Add extra payments to see savings.
➡️ Simple Interest
Model short-term loans, T-bills, or balloon notes.
➡️ Rule of 78s
Compare precomputed vs. amortized interest — see why early payoff costs more.
➡️ Interest-Only
Calculate interest during HELOC draw periods; see the “payment shock” when amortization begins.
Note: Assumes fixed rate, on-time payments, and no fees unless specified.