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Whether it's a car loan, a personal loan, a business loan, or a student loan, most fixed-rate installment loans use exactly the same amortization mathematics as a mortgage — the only real differences are typically the size of the loan and the length of the term. Understanding the underlying formula helps you evaluate any loan offer on its true cost, not just its advertised monthly payment. The monthly payment formula is M = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), where P is the loan principal, r is the monthly interest rate (annual rate divided by 100, then by 12), and n is the total number of monthly payments over the loan's term. This formula is designed so that making exactly this payment every month, for n months, brings the loan balance to precisely zero — no more, no less — while ensuring the lender earns the agreed interest rate on whatever balance remains outstanding at any point. Because personal and auto loans are usually much shorter than mortgages — typically 2 to 7 years rather than 15 to 30 — the front-loading of interest that's so dramatic in a mortgage is less pronounced, but it's still present. Early payments on a 5-year car loan still carry a higher proportion of interest than payments in year 4 or 5, just not as extremely skewed as a 30-year mortgage. This matters if you're considering paying off a loan early: paying extra in year 1 saves more interest than paying the same extra amount in year 4, because more of that early balance is subject to interest for longer. A worked example: a £20,000 car loan at 7.5% annual interest over 5 years (60 months). The monthly rate r = 7.5 ÷ 100 ÷ 12 ≈ 0.00625, and n = 60. Plugging into the formula gives a monthly payment of approximately £400.76. Over 60 months, total payments come to about £24,046, meaning total interest over the life of the loan is roughly £4,046 — about 20% of the original loan amount. Compare this to the same £20,000 loan stretched to 7 years (84 months) instead: the monthly payment drops to about £304.35, which looks more affordable, but total interest rises to roughly £5,565 — nearly £1,500 more in interest paid, purely for the convenience of a lower monthly payment. A common misconception when shopping for loans is focusing exclusively on the monthly payment figure a lender advertises, without checking the term length or total interest cost behind it. Two loans with identical monthly payments can have very different total costs if one has a longer term and a different rate — a dealer or lender can make almost any loan "fit" a target monthly payment simply by extending the term, which quietly increases the total interest paid over the life of the loan even if the payment itself looks attractive. Always compare the total interest figure, not just the monthly payment, before choosing between loan offers.