Loan monthly installment – How to calculate it correctly

A loan’s monthly installment is the amount paid monthly that consists of principal repayment and interest. In this guide we explain how the monthly installment is calculated, what factors affect its size, and how you can reduce it reasonably.

What is a loan’s monthly installment?

The monthly installment is the amount you pay each month to the lender. It includes:

• Principal repayment – paying back the loan principal
• Interest – the cost of the loan
• Monthly fee – optional account maintenance fee (if the lender charges one)

How is the monthly installment calculated?

The most common loan type in Finland is an annuity loan, where the monthly installment stays the same throughout the repayment period. In the early stages, a large portion of the installment goes to interest, while the principal share grows over time.

Another common type is the straight-line loan, where the monthly installment gradually decreases as principal repayment stays the same and interest decreases on the remaining principal.

Example calculations for different loan amounts

€10,000 loan, 5-year repayment period

• Effective annual rate 8%: monthly installment approx. €203, total interest approx. €2,165
• Effective annual rate 12%: monthly installment approx. €222, total interest approx. €3,350

€20,000 loan, 10-year repayment period

• Effective annual rate 8%: monthly installment approx. €243, total interest approx. €9,110
• Effective annual rate 12%: monthly installment approx. €287, total interest approx. €14,440

How to reduce the monthly installment

1. Longer repayment period – reduces monthly installment but increases total interest costs.
2. Lower rate – comparison can drop the rate by several percentage points.
3. Smaller loan amount – consider whether you really need the full amount.
4. Consolidation loan – if you have several small loans at high rates, consolidation can significantly reduce monthly costs.

What does the monthly installment affect?

The monthly installment is one of the most important metrics for a borrower. It affects:

• Your ability to pay – can you pay the installment every month?
• Your daily budget – how much is left for other expenses?
• Loan approval – the lender evaluates your repayment ability relative to the installment.

The 30% rule

The general recommendation is that all your loan installments combined should not exceed 30% of your net income. Read more about how much loan you can reasonably take.

Use a loan calculator

Lainafy’s loan calculator helps you see the concrete monthly installment with your chosen loan amount, rate and repayment period – without registration.

Frequently asked questions

Can the monthly installment be changed during the loan period?

Many lenders allow changes to the monthly installment during the loan – either extending the period to reduce installments or vice versa. Check the terms of your loan agreement.

Is the monthly installment the same every month?

In an annuity loan, yes. In a straight-line loan, the installment decreases over time as interest costs go down.

Can the monthly installment be paid in advance?

Yes, most Finnish consumer loans can be repaid early without additional fees under consumer protection law.