How Much Would You Pay Monthly on a $5,000 Personal Loan?
Written by
Andrea Norris
Edited by
Levi Leidy
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If you’re considering borrowing money, it’s wise to look at your financial situation first to determine whether the monthly payments on a loan will fit into your existing budget. Overborrowing can mean living with an overly tight budget until you repay the loan, or worse, defaulting on the loan and damaging your credit. Read on to get an idea of how much the monthly payments on a loan might be.
Monthly Loan Payments: Key Points To Know
What exactly is a monthly loan payment? A monthly loan payment is the money a borrower pays to a lender each month for the life of a loan. The lender applies each monthly payment to the loan principal, accrued interest and, if applicable, any fees. The principal is the amount borrowed. The interest is the cost paid for borrowing the principal.
A lender structures the loan and bases the monthly payments on the following:
- The principal
- The loan’s annual percentage rate (interest)
- The length of the loan, also called the loan term
You can use these same factors to estimate monthly loan payments before borrowing to determine if you can afford a personal loan.
How Much Would a $5,000 Loan Cost Per Month?
According to the most recent data from the Federal Reserve, the average commercial bank personal loan APR for a 24-month term is 12.32%. The monthly payment would be about $236.12.
However, your APR could be lower or considerably higher, or your loan term could be longer. Your loan structure — from the amount you can borrow to the APR to the length of the loan — is determined by the lender based on your credit score, along with several other factors, including your income and current debt obligations. So, knowing how the loan APR and term will affect the monthly payment is helpful.
The following tables can give you an idea of how much your monthly payment would be on a $5,000 loan for different loan APRs and terms.
How APR Affects the Monthly Payment
This table compares monthly payments on a $5,000 24-month loan at different APRs. Generally, the better your credit score, the lower the APR you will receive. If you have a fair to low credit score, you can expect a higher APR and a higher monthly payment.
| APR | Term | Monthly Payment |
|---|---|---|
| 10.00% | 24 months | $230.72 |
| 12.32% (average) | 24 months | $236.12 |
| 15.00% | 24 months | $242.43 |
| 19.00% | 24 months | $252.04 |
| 24.00% | 24 months | $264.36 |
| 29.00% | 24 months | $277 |
How the Loan Term Affects the Monthly Payment
The examples in this table all have the same APR, but the term differs for each. It’s easy to see that the longer the loan term, the lower the monthly payment. However, a longer loan term means a longer time for interest to accrue.
| Term | APR | Monthly Payment |
|---|---|---|
| 12 months | 12.32% | $444.99 |
| 24 months | 12.32% | $236.12 |
| 36 months | 12.32% | $166.84 |
| 48 months | 12.32% | $132.46 |
| 60 months | 12.32% | $112.03 |
How Do You Calculate Monthly Payments on a Loan?
Most lenders use the following formula for calculating fixed-interest monthly loan payments:
- Monthly payment = P ((R (1+R)N) / ((1+R)N-1))
In this equation:
- “P” represents the loan principal
- “R” is the annual rate
- “N” is the loan term
You can plug various loan amounts, terms and annual rates into the equation and do the math. However, the easiest way to calculate a personal loan payment is to use an online loan calculators. Many allow you to input any loan amount, APR and term.
Other Personal Loan Costs To Consider
Personal loans may come with other fees that can increase the cost of borrowing. Lenders charge hefty late fees if you fail to make on-time payments. Some may charge a prepayment penalty, which is something to watch for if you hope to pay off your loan early.
Perhaps the most costly fee some lenders charge is an origination fee for loan processing. An origination fee might be a flat fee or a percentage of the borrowed amount. Usually, the origination fee is deducted from the principal before the loan funds are dispersed to you.
Key Takeaways
Depending on the loan terms, borrowing $5,000 will cost most borrowers anywhere from $100 to $300 a month — which includes several hundred dollars in interest — for the life of the loan. So, choosing a lender that can provide you with the best rate for your credit score and a term that works with your budget is essential. As you compare loan options, remember that a longer term can make payments more affordable but will cost you more in interest. Also, determine any fees you may incur, especially origination fees, that can make borrowing even more expensive.
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- Federal Reserve "Consumer Credit"
