Personal Loan Calculator
An origination fee comes out of what you receive, but you repay interest on the whole amount. That makes the rate you actually pay higher than the one on the agreement.
Monthly payment
$326.14per month
- Monthly payment
- $326.14
- You receive
- $14,250.00
- Origination fee
- $750.00
- Total repaid
- $19,568.18
- Total interest
- $4,568.18
- Effective rate
- 13.26%
- The fee comes out of what you receive, so you borrow $15,000.00 and get $14,250.00. You still repay interest on the whole $15,000.00, which is why the effective rate is 13.26% rather than the 11.00% quoted.
- Compare loans on the effective rate rather than the headline one. A lower rate with a large origination fee is often worse than a higher rate with none.
- Personal loans are usually unsecured and fixed-rate, so the payment does not move — but the rate is set by your credit standing and the quoted rate is rarely the one everybody gets.
About the personal loan calculator
Personal loans are usually unsecured and fixed-rate, so the payment does not move and the arithmetic is the same as any other amortizing loan. The thing worth calculating separately is the origination fee, because of how it is charged.
Borrow $15,000 at 11% over five years with a 5% fee and the fee is $750. It is deducted from the advance, so you receive $14,250 — but the loan is $15,000 and you pay $326.14 a month against that. The rate you are really paying, measured against the money you got, is 13.26% rather than 11%.
That gap is why comparing loans on the headline rate is unreliable. A lender quoting a lower rate with a large fee can easily be more expensive than one quoting a higher rate with none, and the difference is invisible until you work it out.
The quoted rate is also rarely the rate everybody gets. Advertised rates are typically available to a minority of applicants, and the offer you receive depends on your credit standing — which is worth checking with a soft search before applying, since every formal application leaves a mark.
What it works out
- The monthly payment and total repaid
- What you actually receive after the fee
- The effective rate, against the money you got
- Any rate, term and fee
The formula
Payment on the full amount, but the effective rate is the rate that clears (Amount − Fee) at that payment
The payment comes from the ordinary amortization formula on the whole $15,000: $326.14 a month for sixty months.
The effective rate is the interesting part. You did not receive $15,000, you received $14,250 — so the honest question is what rate makes $14,250 require a $326.14 payment over five years. There is no algebraic answer, so it is found by bisection: the answer is 13.26%.
A fee of five per cent has therefore added more than two points to the rate. That relationship is not proportional — a shorter term concentrates the fee into fewer payments and raises the effective rate further, so the same fee on a two-year loan costs considerably more in rate terms than on a seven-year one.
This is what makes headline rates a poor basis for comparison. Work out the effective rate on each offer and compare those instead.
- Amount
- The loan on the agreement. Interest is charged on all of it.
- Fee
- Deducted from the advance, so it reduces what you receive without reducing what you owe.
- Payment
- Calculated on the full amount, not on what you received.
- Effective rate
- The rate that would produce this payment on the money you actually got.
A worked example
$15,000 at 11% over five years, with a 5% origination fee taken out of the advance.
That works out to $326.14 per month.
- Monthly payment
- $326.14
- You receive
- $14,250.00
- Origination fee
- $750.00
- Total repaid
- $19,568.18
- Total interest
- $4,568.18
- Effective rate
- 13.26%
Questions
What is an origination fee?
A lender's charge for making the loan, usually 1% to 8% of it, and normally deducted from the money you receive. You still repay the full amount with interest on all of it.
How much does a 5% origination fee really cost?
On $15,000 at 11% over five years, it turns an 11% loan into a 13.26% one. The fee itself is $750, but its effect on the rate is larger than the percentage suggests because you pay interest on money you never received.
Should I compare loans on APR or interest rate?
On something that includes the fees, which is what APR is meant to do — but definitions vary and not every fee is always captured. Working out the effective rate yourself, as this does, is the reliable version.
Does a shorter term make the fee worse?
Yes, in rate terms. The same fee spread across fewer payments raises the effective rate more. A five per cent fee on a two-year loan is a much bigger penalty than on a seven-year one, even though the cash amount is identical.
Can I avoid origination fees?
Many lenders charge none, and it is worth asking specifically. A no-fee loan at a slightly higher headline rate frequently works out cheaper — which is exactly the comparison the effective rate settles.
Will I get the advertised rate?
Usually not. Advertised rates are typically offered to a minority of applicants, and yours depends on credit standing, income and term. Use a soft search to see your actual rate before applying formally.
Is a personal loan better than a credit card?
Almost always, on rate — personal loan rates are far below card rates. It is also a fixed term with a definite end date, which a card is not. The risk is clearing the cards with a loan and then using the cards again.