Worked Examples and Checklists
How much does a personal loan cost? Canadian worked examples with the maths shown
Calculate a personal loan's monthly payment, total interest and APR step by step, with an illustrative $15,000 Canadian example, term comparisons and a year-by-year schedule.
The cost of a personal loan comes down to three inputs: the amount, the rate and the term, plus any fees. With those you can calculate the monthly payment, the total interest and the APR yourself, and check what a lender tells you. As an illustrative example, $15,000 at 10.5% over 5 years costs about $322.41 a month and about $4,344.51 in interest. The same loan over 3 years costs about $487.54 a month but only about $2,551.32 in interest. This guide shows how those numbers are produced and links to the worked examples for fees, consolidation, prepayment and lines of credit.
This is the overview for the worked examples section. Every rate is illustrative, not a quote.
The payment formula
For a loan with equal monthly payments:
Payment = P × r ÷ (1 − (1 + r)^−n)
- P = amount borrowed
- r = annual rate ÷ 12 (for 10.5%, r = 0.00875)
- n = number of monthly payments (5 years = 60)
For $15,000: 15,000 × 0.00875 ÷ (1 − 1.00875^−60) ≈ $322.41.
Total paid = 322.41 × 60 ≈ $19,344.51. Total interest = $19,344.51 − $15,000 = $4,344.51.
You do not need to do this by hand: the personal loan calculator applies the same formula. Spreadsheet users can type =PMT(10.5%/12, 60, -15000).
Where each payment goes
In the first month, interest is $15,000 × 0.00875 = $131.25, so $191.16 of the $322.41 payment reduces the balance. Each month the balance is smaller, so interest falls and more goes to principal.
| End of year | Interest paid that year | Balance remaining |
|---|---|---|
| 1 | about $1,461 | about $12,592 |
| 2 | about $1,196 | about $9,920 |
| 3 | about $901 | about $6,952 |
| 4 | about $574 | about $3,658 |
| 5 | about $211 | $0 |
Two lessons follow. First, a third of all interest is paid in year one, so early extra payments save the most; see prepaying early. Second, if you refinance in year 2, you have already paid most of the interest on the original loan.
Term: lower payment or lower cost
Same $15,000 at 10.5%:
| Term | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| 3 years | about $487.54 | about $2,551 | about $17,551 |
| 5 years | about $322.41 | about $4,345 | about $19,345 |
| 7 years | about $252.91 | about $6,244 | about $21,244 |
Going from 3 to 7 years cuts the payment by about $235 but more than doubles the interest. Choose the shortest term whose payment you can carry comfortably, and remember that a longer term also raises your debt ratio for longer; see how lenders assess applications.
Payment frequency
Some lenders let you pay every two weeks. Paying half the monthly payment every two weeks means 26 half-payments a year, the equivalent of 13 monthly payments. Illustratively, on the $15,000 loan that clears the debt in about 4.5 years and cuts interest to roughly $3,850. Simply converting the monthly amount to an equivalent biweekly amount (12 ÷ 26 of it) changes very little. Ask the lender how it applies extra or more frequent payments.
Fees: what they do to the APR
If a lender deducts a $750 fee from the $15,000, you receive $14,250 but repay the same $322.41 a month. The APR on what you received is about 12.75%, not 10.5%. If the fee is instead added to the balance, you pay interest on it as well. Both cases are worked in calculating APR when fees are deducted.
Map of the worked examples
| Question | Guide | Tool |
|---|---|---|
| What is the real APR with fees? | APR when fees are deducted | Loan calculator |
| Which of two offers is cheaper? | Compare two offers | Loan calculator |
| Will consolidating save money? | Consolidation example | Consolidation calculator |
| How much does paying early save? | Prepaying early | Early repayment estimator |
| Line of credit or loan? | Line of credit vs loan | Loan calculator |
| What should I prepare? | Application checklist | Offer checklist |
Common calculation mistakes
- Comparing monthly payments across different terms. A lower payment over a longer term usually costs more.
- Ignoring deducted fees. The cash you receive is what the APR should be measured on.
- Forgetting optional insurance. It is excluded from the APR but not from your budget.
- Using a rate that is not annual. In Canada the Interest Act requires the yearly equivalent of rates expressed per day, week or month; always convert to an annual rate.
- Assuming a variable rate stays put. Model a rise of 1 or 2 points before you commit.
Frequently asked questions
Why does my lender's payment differ slightly from the calculator?
Lenders may calculate interest daily, round payments, or start the first payment after a different interval. Small differences are normal; large ones deserve a question.
Is interest on a personal loan tax-deductible?
Generally not, when the loan funds personal spending. Interest on money borrowed to earn business or investment income can be deductible under tax rules; ask a tax professional.
How do I find the APR if the lender only gave me a payment?
Use a spreadsheet: =RATE(60, -322.41, 15000)*12 returns the annual rate. Replace 15,000 with the cash you actually received if fees were deducted.
Should I choose a fixed or variable rate?
A fixed rate gives certainty. A variable rate may start lower but can rise. For a short personal loan, predictability usually matters more than a small initial saving.
Sources
- Financial Consumer Agency of Canada — loan calculators and how loan costs work
- Justice Laws Website — Interest Act s. 4; Financial Consumer Protection Framework Regulations on APR
- Bank of Canada — interest rate decisions affecting variable rates
