How the fixed-installment formula works
This is the most common model for auto loans, personal loans and similar financing: the installment amount stays the same from the first payment to the last, only the split between interest and principal within each payment changes (early on, more of the payment goes to interest; later, more goes to principal).
Formula
PMT = P × r / [1 − (1 + r)^−n], where P is the loan amount, r is the interest rate per period (as a decimal) and n is the number of installments.
Example
A $10,000 loan at a 1.5% monthly rate over 24 installments: PMT ≈ $499.24 per month, totaling $11,981.76 paid — $1,981.76 in interest.
Fixed installments vs. constant amortization
With fixed installments, the payment is the same every month. With constant amortization (more common in some mortgages), the principal portion is always the same and the payment decreases over time, starting higher and ending lower — this usually results in less total interest over the long run.
Frequently asked questions
Do the rate and the number of installments need to use the same unit?
Yes. If the rate you entered is monthly, the number of installments should also be in months.
Does this include insurance, fees or taxes?
No. It's only a simulation of the fixed-installment amortization based on the interest rate entered — real contracts usually have additional costs that increase the effective total cost.
Why is the payment fixed but the interest amount changes every month?
Because the outstanding balance decreases with each payment — since interest is calculated on the outstanding balance, it gets smaller over time, and the principal portion of the payment gets larger.