Definition
A monthly payment is the fixed amount you pay each month to repay a loan. It includes both a portion of the principal (the original loan amount) and interest charged by the lender. The payment amount stays the same each month, but the split between principal and interest shifts — early payments are mostly interest, later ones mostly principal.
Example
On a $25,000 auto loan at 6% APR over 60 months, your monthly payment is $483. In month 1, about $358 goes to principal and $125 to interest. By month 50, about $458 goes to principal and $26 to interest.
How It's Calculated
Monthly Payment = P × [r(1+r)^n] ÷ [(1+r)^n − 1], where P = loan principal, r = monthly interest rate (annual rate ÷ 12), n = number of monthly payments (loan term in months).
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