How compound interest works on a loan
US statements quote a nominal APR. Compounding splits it across periods, so 11% compounded monthly is 11% ÷ 12 a month, and interest is then charged on interest. The effective annual rate, ((1 + APR ÷ periods)^periods − 1), shows the true yearly growth.
Each month the calculator adds the interest, then subtracts your payment.
Worked example
$15,000 at 11% compounded monthly, with nothing paid, grows to $23,243.97 in 4 years: $8,243.97 of interest. The effective annual rate is 11.57%.
Compounded daily, the balance reaches $23,289.06.
Where compounding shows up
Credit cards compound daily on unpaid balances. Unsubsidized federal student loans build up interest in school, which can be capitalized (added to the principal) later. Most installment loans use simple interest, which doesn't compound if you pay on time.
What this calculator assumes
A fixed APR, interest added at the end of each month before the payment, and no fees or late charges.
Borrowing in the UK?
The country choices above the inputs open separate local pages. In the UK a quoted APR is an effective rate that already includes compounding. Choosing United Kingdom opens that page and resets the inputs; amounts are not converted.
For a UK loan, use the UK compound interest loan calculator in pounds.
Inputs for the US loan compound interest calculator
Loan amount
What you owe at the start, in US dollars.
Interest rate (APR)
The nominal yearly rate on your statement or note.
Time period
How many years to work it out for.
Interest compounds
How often interest is added to the balance.
Monthly repayment
What you pay each month. Enter 0 to see the balance grow untouched.
CALCULATOR QUESTIONS
US loan compound interest calculator questions
How do you calculate compound interest on a loan?
Divide the APR by the number of compounding periods, apply it to the balance each period, and add it on. Over a year the growth is the effective annual rate.
What's the difference between APR and the effective annual rate?
The APR is the nominal yearly rate. The effective annual rate includes the effect of compounding, so it's higher whenever interest compounds more than once a year. APY is the savings version, for interest you earn.
Do car loans use compound interest?
Most use simple interest: daily interest on the principal, paid off by each payment, so it doesn't compound unless payments are missed.
Does paying more each month stop compounding?
Paying at least the interest each month stops the balance growing. Paying more brings the payoff date forward.