Personal Loan Calculator

How origination fees change your real cost

An origination fee is charged one of two ways, and the difference is a real cash-flow difference rather than a presentational one. Take $20,000 at 8.00% over 60 months with a 5% fee:

The row that catches people out is the middle one. You sign for $20,000, $1,000.00 is withheld, $19,000 reaches your account — and your payment is still calculated on the full $20,000. You borrow twenty thousand dollars’ worth of obligation and receive nineteen thousand dollars’ worth of money.

Financing the fee instead raises the payment from $405.53 to $425.81, because you are now amortizing $21,000 — but you keep the full $20,000. Per dollar actually received it is marginally the cheaper of the two here (27.74% of proceeds versus 28.06%), though it costs more in absolute terms.

Two loans, identical payment, different economics

Comparing offers on the monthly payment alone hides the fee entirely. These first two loans have the same rate, the same term, the same monthly payment and the same total repaid. They are not the same deal.

A and B bill you identically — $405.53 a month, $24,332 in total — but B hands you $1,000 less. Measured against the cash you actually receive, B costs 10.20% a year against A’s 8.00%.

Loan C is the useful comparison: it delivers the same $19,000 as B, with no fee, at the same stated rate. It costs $385.26 a month instead of $405.53 — a difference of $20.27 every month for the same money in hand. That gap is what the fee actually buys the lender.

Interest rate vs APR vs effective cost

Three different numbers get called “the rate”, and mixing them up is the most common way to misread a loan offer.

This is also why the rate field above is labelled Interest rate and not APR. If you typed an advertised APR into it and then entered the origination fee separately, you would be counting the fee twice — once inside the APR the lender already calculated, and again in our fee field. Enter the nominal rate, and let the fee field carry the fee.

Worked example

$20,000 at 8.00% over 60 months with a 5% origination fee deducted from proceeds, step by step.

The stated rate is 8.00%. The cost measured against the money you actually received is 10.20% — a gap of 2.20% created entirely by the fee.

These figures are generated by the same module that powers the calculator above, so they cannot drift out of step with it.

How personal-loan payments are calculated

Personal loans are almost always fixed-rate, fixed-term and fully amortizing: the same payment every month, and the balance reaches zero on the final one. The payment comes from the standard amortization formula, where L is the principal being amortized, r is the annual rate divided by twelve, and n is the number of payments.

P = L × r(1 + r)ⁿ / ((1 + r)ⁿ − 1)

Each month, interest is charged on the balance still outstanding and the rest of the payment reduces the principal. Because the balance shrinks, the interest share shrinks with it — so early payments are mostly interest and late payments are mostly principal. On a five-year personal loan this front-loading is far milder than on a thirty-year mortgage, which is why prepaying a personal loan saves proportionally less than prepaying a mortgage.

All figures are computed in whole cents rather than decimal dollars, so the schedule reconciles exactly: the principal column sums to the amount amortized, and the final balance is zero rather than a fraction of a cent.

Extra payments and early payoff

Anything you pay above the scheduled amount goes straight to principal, so it removes every future interest charge that principal would have generated. Enter a figure in Extra monthly payment above and the schedule shortens, the payoff date moves earlier, and the interest saved is shown against the contractual schedule.

Two cautions. First, an origination fee is charged up front and is not refunded by paying early — prepaying reduces interest, never the fee, which is why the effective-cost figure on this page describes the loan as agreed rather than as accelerated. Second, some lenders apply overpayments to the next instalment rather than to principal unless you tell them otherwise; if the balance does not drop, ask.

Common questions

Should I enter the APR or the interest rate?

The interest rate. An advertised APR already includes the fee, so entering it here and also filling in the fee field would count the fee twice. If the rate is all you have, enter it and leave the fee at zero — the result then approximates what the APR describes.

Why is the cash I receive less than the loan amount?

Because an origination fee deducted from proceeds is withheld before disbursement. You still repay the full contract amount with interest. On the default scenario that is $19,000 received against $20,000 repaid, plus $4,331.62 of interest.

Is it better to have the fee deducted or financed?

It depends on whether you need the full amount. Financing the fee gives you all the cash but a bigger balance and a higher payment; deducting it gives you less cash for a smaller payment. On the example above the financed version is marginally cheaper per dollar received (27.74% versus 28.06% of proceeds) while costing $1,216.58 more in absolute terms. If you need a specific sum in hand, borrow enough that the amount after the fee covers it.

Does this include late fees or prepayment penalties?

No. It models principal, interest and the origination fee only. Check your Truth in Lending disclosure for anything else.

Is the effective annual cost the same as APR?

No, and we are careful not to call it that. See Interest rate vs APR vs effective cost above.