How we calculate loan installments
We use the French amortization system (equal installments), which produces identical payments from the start to the end of the contract.
Use the Loan Payment CalculatorFormula
i = monthly rate as a decimal
PMT = PV × i ÷ (1 − (1 + i)^(−n))
total paid = PMT × n; interest = total paid − PV
Variables
- PV
- Present value: the amount borrowed.
- i
- Interest rate per period, as a decimal (2% per month = 0.02).
- n
- Number of installments.
Step-by-step calculation
- We convert the percentage rate to a decimal.
- We apply the amortization formula; if the rate is zero, the installment becomes PV ÷ n.
- We multiply the installment by the number of periods to find the total and the interest.
Worked example
Inputs
- Amount: $10,000
- Rate: 2% per month
- Installments: 24
Calculation
i = 0.02
PMT = 10,000 × 0.02 ÷ (1 − 1.02^−24)
Installment of about $528.71, totaling $12,689 with $2,689 in interest.
Common mistakes
- Entering an annual rate in the monthly rate field — convert it first with (1+ia)^(1/12)−1.
- Ignoring fees, insurance, and other charges, which aren't part of the pure formula.
Frequently asked questions
Does the installment change over the life of the loan?
Not in this model. What changes is the composition: more interest at the start, more principal at the end.
All values are in US dollars (US$). Results are estimates and do not replace professional advice.