Know the Numbers Before You Borrow

How it works

Personal loans are usually fully amortizing: every payment is the same, and each one covers that month’s interest first, with the rest reducing your balance. The calculator uses the standard amortization formula:

P is the amount you borrow, r is the APR divided by 12, and n is the number of monthly payments. Early payments are mostly interest; by the end they are almost all principal, which is why the schedule’s interest column shrinks each month.

An origination fee is usually taken out of the loan before you receive it. You still repay the full amount, so the cost of borrowing rises. The “APR incl. fee” figure finds the rate at which your payments equal the cash you actually received, the same idea behind the APR lenders must disclose under the Truth in Lending Act.

What this means for you

• A shorter term raises the payment but cuts total interest. Compare 12 vs. 24 months with the slider.
• On small loans, a flat fee can raise the true APR sharply. Always compare offers by APR, not by the interest rate.
• Check whether the loan has a prepayment penalty. Without one, paying early saves the interest you haven’t been charged yet.

How it works

Total cost is everything you pay beyond the cash you receive: all the interest plus any origination fee. It’s the fairest single number for comparing offers of the same amount.

True APR is the yearly rate at which your payments exactly repay the cash you received. When there’s no fee, it equals the quoted rate. With a fee, it’s higher, and the shorter the term, the bigger the jump, because the fee is spread over fewer months.

Offers with different terms can rank differently on total cost and on APR. A longer loan can have a lower APR and still cost more in dollars because you pay interest for longer.

What this means for you

• Compare offers for the same amount and, ideally, the same term. Then pick on total cost if the payment fits your budget.
• A “low rate” with a 5% fee can cost more than a higher rate with no fee. Try it with the defaults above.
• If you need the full amount in hand, ask whether the fee can be added on top instead of deducted. That changes the payment.

How it works

Card interest is charged on the balance you carry each month. The calculator applies one-twelfth of the APR to the balance, subtracts your payment, and repeats until the balance reaches zero:

If the payment doesn’t cover a month’s interest, the balance never falls, and the calculator tells you so. In “target months” mode it uses the amortization formula to find the fixed payment that clears the balance in exactly that many months.

The loan comparison assumes you borrow the card balance at the loan APR over the same number of months, with no fee, so you can see how much a lower fixed rate changes the interest.

What this means for you

• Paying only the minimum keeps the payment low but can stretch payoff over years. Add even $25 a month and watch the months drop.
• Stop adding new charges to the card you’re paying down, or the payoff date will keep moving.
• A loan only saves money if its APR, fees included, is lower than your card’s. Use Calculator 2 to check the fee.

How it works

For your current debts, the calculator pays each balance month by month at its own APR and payment until it reaches zero, then adds up the interest. Your debt-free date is when the last one is paid.

For the loan, it adds your balances together. If there’s an origination fee, it borrows a little more so you still receive enough to pay everything off:

It then applies the standard payment formula over your chosen term. “Savings” compares total interest on today’s plan with the loan’s interest plus fee. A positive number means the loan costs less overall.

What this means for you

• A longer loan term lowers your monthly payment but can erase the savings. Watch both numbers as you move the term slider.
• Consolidation works best when the loan APR is clearly below your average card APR and you stop using the paid-off cards.
• If a debt’s payment doesn’t cover its interest, it never gets paid off as is. The calculator flags that for you.

How it works

The Consumer Financial Protection Bureau defines your debt-to-income ratio as all your monthly debt payments divided by your gross monthly income:

Include payments you’re required to make: rent or mortgage, car, student loans, minimum card payments, and other loans. Don’t include everyday costs such as groceries, utilities or phone bills. Use income before taxes and deductions.

The CFPB notes that different loan products and lenders set different DTI limits, so there’s no single cutoff that applies everywhere. The bands shown are a general way to read your result.

What this means for you

• A lower DTI usually means more offers and better rates. Paying down a card balance lowers its minimum payment and your DTI.
• Check the “with new loan” figure before you apply. If it jumps into a higher band, a smaller amount or longer term may help.
• DTI doesn’t show your full budget. Make sure what’s left each month covers food, utilities and savings.

How it works

A payday loan’s cost is a flat fee per $100 borrowed. According to the CFPB, a typical two-week payday loan with a $15 per $100 fee equals an APR of almost 400%. We convert the fee to an APR the same way:

Where state law allows, a lender may let you “roll over” or renew the loan when it’s due, so you pay only the fee and the full amount comes due again later. Each rollover adds another fee, and you still owe the original amount. The calculator multiplies the fee by the original loan plus each rollover.

The installment side uses the standard monthly payment formula at the APR and term you choose.

What this means for you

• A payday loan repaid on time can look cheap in dollars, but each rollover adds the full fee again.
• An installment loan spreads repayment over months, so each payment is smaller than repaying a payday loan in one lump sum.
• Before borrowing, ask your creditor for a payment plan, or check whether a local credit union offers small-dollar loans.