Three ways a loan gets repaid
“Loan” covers a lot of ground, and how you repay one changes its true cost. Our loan calculator handles the three structures you will meet most often: amortized loans, deferred payment loans, and bonds. Understanding the difference helps you compare offers fairly.
Amortized loans
This is the everyday loan: mortgages, auto loans, and personal loans. You make a fixed paymentevery period, and each one covers the interest due plus a slice of principal. The payment is found with the standard amortization formula:
Payment = P × r × (1 + r)n / [ (1 + r)n − 1 ]
where P is the amount borrowed, r the periodic interest rate, and n the number of payments. Because interest is charged on the shrinking balance, the amortization schedule shifts from interest-heavy to principal-heavy over time.
Example: a $100,000 loan at 6% for 10 years costs about $1,110 a month, and you repay roughly $133,000 in total — around $33,000 of interest.
Deferred payment loans
Here you pay nothing during the term. Interest compounds on the balance, and the entire amount is repaid as a single lump sum at maturity. It is common with some student loans and short-term business financing. The amount due grows as:
Amount due = P × (1 + r)n
Convenient for cash flow now, but because interest compounds untouched, the final bill can be a lot larger than the amount you originally borrowed.
Bonds and present value
A bond promises a fixed face value at maturity. To decide what it is worth to a lender or investor today, you discount that future payout back to the present:
Present value = FV / (1 + r)n
The gap between the present value and the face value is the interest the investor earns for waiting. Higher rates or longer terms push the present value lower.
Comparing the true cost of a loan
- Compare the total interest, not just the monthly payment — a low payment can hide a high lifetime cost.
- Watch the rate and term together: a longer term almost always means more interest overall.
- Look for fees (origination, processing) that the sticker rate leaves out; the APR captures more of them.
- For amortized loans, prepaying principal reduces every bit of future interest on that balance.
A note on assumptions
The calculator uses a fixed rate with monthly compounding for clarity. Real-world loans may compound differently, carry variable rates, or add taxes, insurance, and fees. Use the results to compare structures and plan — then confirm the exact figures with your lender.
Run the numbers
Pick a loan type, enter your amount, rate, and term, and see the payment, total interest, and full amortization schedule instantly.
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