Worked example: what a longer loan really costs
Suppose you borrow $20,000 at a fixed 6% annual interest rate. Enter 20,000 as the amount, 6 as the rate and 5 as the term. The unrounded monthly payment is $386.66; the tool displays about $387. Over 60 payments, total interest is about $3,200.
Now change only the term to 3 years. The payment rises to about $608, but total interest falls to about $1,904. The shorter term costs roughly $222 more each month and saves about $1,296 in interest. This comparison separates a smaller payment from a cheaper loan.
Reproduce the first month
The monthly rate is 0.06 / 12 = 0.005. The first month's interest is $20,000 × 0.005 = $100. Of the $386.66 payment, approximately $286.66 reduces the principal. The next month's interest is computed on the smaller remaining balance. Keep full precision when checking the totals; multiplying the rounded $387 display by 60 will not reproduce the exact total.
What to enter from an actual offer
Use the amount financed after your down payment and the contractual interest rate. An APR that includes fees is useful for comparing offers but may not reproduce the scheduled payment when entered as the interest rate. Add origination charges separately when comparing total cost. Mortgage property taxes, insurance, escrow and adjustable-rate changes are not included here.
At 0% interest the payment is simply principal divided by the number of payments. Before choosing a shorter term, compare the higher payment with your available monthly budget.
Background: CFPB explanation of amortization. The numerical example above is calculated by Calcoras using the formula on this page.
Examples and assumptions updated September 28, 2026. Amounts are illustrative, not current product quotes.