How Monthly Loan & Mortgage Payments Work
Whether it’s a car loan or a 30-year mortgage, the monthly payment comes from the same formula. Understanding it helps you compare offers and see where your money really goes.
What sets the payment
Three things decide your monthly payment: the amount borrowed (principal), the interest rate, and the term (how many months you pay). A longer term lowers the monthly payment but raises the total interest you pay.
The amortization formula
Payment = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where r is the monthly rate (annual ÷ 12) and n is the number of months. Every payment is split between interest and principal.
The Loan Calculator and Mortgage Calculator do this for you and show the total interest over the life of the loan.
Why early payments feel slow
Early on, most of each payment goes to interest because the balance is still large. As the balance shrinks, more goes to principal — which is why extra early payments save the most interest.
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Last updated: July 6, 2026