## Personal Loan Calculator

Here we have a simple personal loan calculator, which can be used to compute monthly payments. The calculator requires three inputs by the user:

- The principal of the loan, which is the amount of money borrowed
- The number of years the loan will be outstanding. This is often referred to as the term of the loan
- The annual interest rate charged on the loan, which is
**not**the annual percentage rate – more on that later

The calculator then provides the user with three values:

- The monthly payment, which is how much the borrower will owe the lender each pay period
- The total of all payments, which is found by multiplying the monthly payment times the number of months the loan is outstanding
- The total interest paid on the loan, which is calculated by taking the total of all payment and subtracting from it the principal of the loan

### Using Loan Calculators

While this type of personal loan calculator seems straightforward to use. The calculator can be used in several ways. For example, a user could have a monthly payment value they are targeting and use this tool to determine how much they can borrow. More commonly, a user will know how much they need to borrow and use either the term of the loan or percentage rate figure out their monthly payment.

As mentioned about, the calculator needs to know the loan principal, which is the same as the amount borrowed or size of the loan. It also needs to know how long the loan will be outstanding (number of years). This is more formally known as the loan’s term.

#### Interest Rates versus Annual Percentage Rates

Finally, the calculator needs to know the interest rate on the loan, which is the cost of borrowing. Some users will mistakenly input the loan’s annual percentage rate, or APR, and wonder why information received from a lender doesn’t match calculator’s monthly payment. Lenders are required to quote the loan’s APR to make it easier for borrowers to compare loans and understand the impact various fees have on their cost to borrow. Think of APR as the “all in” cost of the loan, including the interest charges plus any processing fees. Fortunately, lenders will always disclose the loan’s interest rate too. Since the processing fees are typically paid upfront, they won’t be reflected in the monthly payment figure received from the lender. That value is strictly based on the interest rate charged on the loan.