Calculate your installment plan
100% freePayment schedule
| # | Month | Payment | Principal | Interest | Balance |
|---|
- Equal monthly payments at a fixed rate, with interest charged on the unpaid balance each month.
- Each payment is rounded up to the cent and the last one is reduced so the balance lands exactly on zero. On long, high-rate plans this can mean a payment or two fewer.
- No fees, late charges or extra payments. Paying early lowers the interest only if the agreement allows it and charges interest on the unpaid balance.
Estimate only. Fees and the exact day interest starts can change the figures slightly. The 36% top of the rate field is not a legal maximum: many states cap interest on loans between individuals far lower.
How the payment is calculated
Start with the amount financed: the total minus any down payment. If there is no interest, each payment is simply that amount divided by the number of payments.
With interest, each payment covers that month's interest first and pays down the balance with the rest. The standard formula keeps every payment the same:
Payment = P × r ÷ (1 − (1 + r)−n), where P is the amount financed, r is the annual rate as a decimal divided by 12 (6% is 0.06 ÷ 12 = 0.005), and n is the number of monthly payments.
A worked example
| Plan | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| $12,000 over 12 months at 6% | $1,032.80 | $393.58 | $12,393.58 |
| $12,000 over 12 months at 0% | $1,000.00 | $0.00 | $12,000.00 |
| $12,000 over 24 months at 6% | $531.85 | $764.37 | $12,764.37 |
The last payment is a few cents lower ($1,032.78 and $531.82). Stretching the same loan from 12 to 24 months roughly halves the payment but nearly doubles the interest.
When an installment plan makes sense
| Situation | Document to use |
|---|---|
| Lending money to family or a friend | Promissory note or personal loan agreement |
| Selling a car and taking payments | Installment sale and security agreement, with you kept on the title as lienholder until the last payment. Sign a bill of sale saying the price is paid only once it is. |
| Selling a small business over time | Business sale agreement with only the down payment due at closing, plus a promissory note for the balance secured by the business assets |
| Agreeing a plan for a debt already owed | Payment agreement or promise to pay letter. If the debt is old, check the statute of limitations first: in many states a signed acknowledgment or promise to pay restarts the time the creditor has to sue. |
Put the plan in writing
A handshake plan is hard to enforce and easy to misremember. A short written agreement should cover:
- Who the parties are and the total amount owed.
- Any down payment and when it is paid.
- The interest rate, or a clear statement that there is none.
- The payment amount, the due date each month, and how payments are made.
- What happens if a payment is late or missed, including any late fee and whether the full balance becomes due.
- Whether the borrower can pay early without a penalty.
- If you are selling a car, a business or other property on payments, whether you keep a lien or security interest until the last payment.
- Signatures and dates from both sides.
Attach the schedule from the calculator and keep a record of every payment received.
Interest limits and taxes
State interest-rate caps
Most states have usury laws that limit how much interest can be charged on a loan. The limit depends on the state, the kind of loan and sometimes its size. Going over it can cost the lender all the interest, a penalty of several times the excess, or in some states the whole loan: New York treats a usurious loan to an individual as void, and charging more than 25% there is a crime. Check your state's rule before you agree a rate.
Selling on installments can fall under different rules, such as state retail installment sales laws, and a business that regularly offers consumers credit with a finance charge or more than four payments may also owe federal Truth in Lending disclosures.
Interest-free loans and the IRS
Frequently asked questions
How do I calculate an installment payment?
Subtract any down payment from the total to get the amount financed. With no interest, divide it by the number of payments. With interest, use the standard loan formula: payment = P × r ÷ (1 − (1 + r)^−n), where P is the amount financed, r is the annual rate as a decimal divided by 12 (6% is 0.06 ÷ 12 = 0.005), and n is the number of monthly payments. The calculator above does this and builds the full schedule.
What is the monthly payment on $12,000 over 12 months at 6%?
$1,032.80 a month, with a last payment of $1,032.78. Over the year you pay $393.58 in interest, so $12,393.58 in total. At 0% the same plan is $1,000 a month.
Does the calculator work for a private loan between family or friends?
Yes. It gives the payment and schedule for any fixed-rate plan paid in equal monthly installments, whether it is a loan to a relative, a car or business sold on installments, or a payment plan with a contractor.
Do I have to charge interest on a family loan?
Not always. Federal tax law ignores gift loans between two people while everything outstanding between them is $10,000 or less (a married couple counts as one person), unless the money is used to buy investments such as stocks or a rental. Above that, a loan below the IRS Applicable Federal Rate is treated as if interest were charged: the missing interest counts as a gift and as income to the lender. While all loans between you total $100,000 or less, that income is capped at the borrower's net investment income for the year, and is zero if that is $1,000 or less, unless the loan is set up to avoid tax. Ask a tax adviser before lending a larger amount interest-free.
Is there a maximum interest rate I can charge?
Usually, yes. Most states have usury laws that cap the rate on loans between individuals, often far below the 36% the calculator accepts: for example 10% for personal or family loans in California, 16% in New York and 18% in Florida. The cap depends on the state, the type of loan and sometimes the amount, so check your state's limit before you set the rate.
What happens if the borrower pays early?
If interest is charged on the unpaid balance, paying early reduces the balance sooner, so less interest builds up. A borrower does not always have a right to pay early unless the agreement says so, so state that early payment is allowed without a penalty and goes to the balance.
What should an installment agreement include?
The names of both parties, the total amount, any down payment, the interest rate, the payment amount and due dates, what happens if a payment is late or missed, any collateral or lien the seller or lender keeps until the last payment, and both signatures. Attaching the payment schedule from the calculator removes most later disputes about who owes what.