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How business loan payments and APR are calculated
Most term loans are amortized: each monthly payment is the same, with the interest share falling and the principal share rising over time. APR adds fees to the interest rate so you can compare offers with different fee structures.
Formula
Monthly payment = P x r / (1 - (1 + r)^(-n)) P = loan amount, r = annual rate / 12, n = number of monthly payments Total interest = Payment x n - P
Example
$50,000 at 10% for 5 years: r = 0.833%, n = 60. Monthly payment is about $1,062; total interest is about $13,700.
Frequently asked questions
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal; APR also includes origination and other fees, expressed as a yearly rate. Compare loans by APR.
How can I lower my monthly loan payment?
Choose a longer term, negotiate a lower rate, or borrow less. A longer term lowers payments but increases total interest paid.
What is a factor rate?
Some short-term lenders quote a factor (for example 1.2) instead of an interest rate: you repay 1.2 times the amount borrowed. Converted to APR, factor-rate loans are often very expensive.