How the monthly payment is worked out
Every month, interest is charged on what you still owe. Your payment covers that interest first, and whatever is left comes off the balance. Because the balance falls, next month's interest is smaller, so a slightly larger slice of the same payment goes on the balance. That is the whole mechanism, and it is why the schedule below looks the way it does.
The payment itself is the smallest amount that brings the balance to exactly zero by the end of the term. Working it out is not a matter of dividing the loan by the number of months: the interest depends on the balance, and the balance depends on the payments already made. This calculator settles it by running the schedule, which is also why every row on the page adds up to the row above it rather than to a rounded approximation.
Why the first years are mostly interest
On a long loan the balance barely moves at the start. Borrow at six and a half per cent over thirty years and the first payment is roughly six parts interest to one part balance; the halfway point, where more of a payment goes on the balance than on interest, arrives around year nineteen. The chart above marks the year it happens for the loan you entered.
This is the reason overpaying early is worth so much more than overpaying late. An extra amount paid in year one removes a balance that would otherwise have accrued interest for twenty-nine more years. The same amount paid in year twenty-five saves almost nothing. If you type anything into the extra payment field, the page shows both what it saves and how much sooner the loan ends.
Nominal rate, APR and APRC
The rate you type here is the nominal rate: the number that generates interest on the balance, and the number most lenders advertise first. It is not the same as the rate a lender is legally required to quote alongside it.
In the United States that quoted figure is the annual percentage rate, defined by Regulation Z. In the European Union it is the annual percentage rate of charge, defined by the Consumer Credit Directive for personal loans and by the Mortgage Credit Directive for home loans. Both fold arrangement fees, compulsory insurance and other charges into a single rate, so that two offers can be compared on one number. Both are therefore higher than the nominal rate whenever any fee exists.
This page does not compute either of them, because it does not ask about your fees. Use it to understand a loan's shape and to compare scenarios; use the lender's own APR or APRC to compare offers.