$20,000 Personal Loan over 2 years: what it costs each month
What a $20,000 personal loan over 2 years costs at different rates
The rate you are offered depends on your credit score (FICO or VantageScore), your income and how much you borrow. The same $20,000 over 2 years can cost very different amounts, so it is worth seeing the whole range before you apply.
Moving the rate by one percentage point, from 12% to 13%, changes the monthly payment by about $9.37 and the total interest by about $225.
$20,000 over 2 years by interest rate
| APR | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 8% | $904.55 | $1,709 | $21,709 |
| 10% | $922.90 | $2,150 | $22,150 |
| 12% | $941.47 | $2,595 | $22,595 |
| 15% | $969.73 | $3,274 | $23,274 |
| 20% | $1,017.92 | $4,430 | $24,430 |
| 25% | $1,067.43 | $5,618 | $25,618 |
Fixed rate, equal monthly payments, no fees.
The formula behind the payment
The payment on a fixed-rate loan is: amount × monthly rate ÷ (1 − (1 + monthly rate)−months). For $20,000 over 24 months at 12% APR the monthly rate is 1.0000%, which gives $941.47. Multiplying by 24 months gives $22,595 repaid in total, so the cost of borrowing is $2,595.
Should you borrow $20,000 over 2 years or a different term?
A longer term lowers the monthly payment but you pay interest for longer. At 12% APR, repaying $20,000 over 2 years costs $941.47 a month and $2,595 in interest, while 5 years costs $444.89 a month and $6,693 in interest. That is $4,098 more for the lower payment.
$20,000 at 12% APR by term
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 2 years | $941.47 | $2,595 | $22,595 |
| 3 years | $664.29 | $3,914 | $23,914 |
| 4 years | $526.68 | $5,280 | $25,280 |
| 5 years | $444.89 | $6,693 | $26,693 |
Interest versus capital: where your payments go
Early payments are mostly interest. In year 1 of this $20,000 loan, $1,894 of your $11,298 goes on interest and $9,404 reduces what you owe. By the last year the split reverses, which is why paying off a loan early saves more in the early years than the later ones.
$20,000 at 12% APR over 2 years
| Year | Interest paid | Capital repaid | Balance left |
|---|---|---|---|
| 1 | $1,894 | $9,404 | $10,596 |
| 2 | $701 | $10,596 | $0 |
Totals for each year of the loan.
What happens if you overpay your $20,000 loan?
Paying a little extra each month cuts the balance faster, so less interest is charged. Check that your lender allows overpayments and whether there is a charge: many allow up to a set amount a year without one.
Overpaying a $20,000 loan at 12% APR
| Extra payment | New monthly payment | Loan cleared in | Interest saved |
|---|---|---|---|
| +$95 a month | $1,036.47 | 22 months | $263 |
| +$190 a month | $1,131.47 | 20 months | $476 |
| +$380 a month | $1,321.47 | 17 months | $799 |
Compared with the normal 2 years term. Fixed rate, no fees.
How to work out if the payment is affordable
A common check is to keep all debt repayments, including this personal loan, below about a third of your take-home pay. A $941.47 payment fits that guide if your monthly take-home pay is at least $2,824.
Also look at what happens if your income drops. Choose a payment you could still make for several months without borrowing again.
What to check before you sign
- Compare offers from banks, credit unions and online lenders. Prequalifying with a soft credit check does not affect your credit score.
- Ask about origination fees, which are taken from the loan amount and raise the true cost.
- Check for a prepayment penalty. Most lenders do not charge one, but some do.
- Credit unions often offer lower rates than banks for members with fair credit.
Ways to pay less interest
- Pick the shortest term whose monthly payment you can comfortably afford. Going from 5 years to 2 years would save $4,098 on this loan.
- Improve your credit score before you apply: pay bills on time, keep card balances low and dispute errors on your reports.
- Make extra payments when you can, as long as there is no penalty. Each extra payment cuts the balance that interest is charged on.
- Borrow only what you need: every extra $1,000 at 12% over 2 years adds about $47.07 to the monthly payment.
Sources and further reading
Questions people ask
How much is a $20,000 personal loan per month over 2 years?
How much interest will I pay on $20,000 over 2 years?
Is it cheaper to borrow $20,000 over a shorter time?
What income do I need for a $20,000 personal loan?
Does this calculator include fees?
Results are estimates for information only, not financial advice. Read the full disclaimer.