Loan Calculator

How to use this calculator

1. Enter the amount you plan to borrow.
2. Enter the annual interest rate (APR if you know it).
3. Enter the term in years and calculate.

The formula

M

Monthly payment

P

Amount borrowed

r

Monthly rate (annual ÷ 12)

n

Number of monthly payments

How it works

Installment loans amortize: a fixed monthly payment first covers that month's interest on the remaining balance, and the rest reduces principal.

Because the balance falls every month, the interest portion of each payment shrinks over time while the principal portion grows.

Comparing offers properly

Two loans with the same monthly payment can differ by thousands in total cost if their terms differ. Always compare on total interest paid for the same borrowed amount, then check whether the monthly payment is affordable. A longer term will almost always win on affordability and lose on cost.

Watch for arrangement fees, origination charges, and early-repayment penalties, none of which appear in the payment formula. Add fees to the principal to approximate their effect, or compare lenders on APR, which is designed to fold them in.

Fixed versus variable rates

This calculator assumes a fixed rate for the whole term, which is how most personal and auto loans are written. If your rate can move, the payment shown applies only while the current rate holds. Re-run the figures at a rate one or two points higher to see how much headroom your budget really has.

Some loans recalculate the payment on each reset; others keep the payment fixed and extend the term. Check which applies before assuming your instalment is stable.

Paying off early

Because interest accrues on the outstanding balance, any extra payment reduces every future interest charge, not just the current one. Overpayments made in the first third of the term have by far the largest effect.

Before overpaying, confirm there is no early-settlement penalty and that the lender applies extra funds to principal rather than holding them as advance instalments.

APR versus interest rate

The interest rate prices the borrowing itself. The APR folds in compulsory fees, so it is the figure to compare across offers from different lenders.

A loan with a lower rate but a large arrangement fee can cost more overall than one with a higher rate and no fee, especially over short terms where the fee is spread thinly.

Advertised APRs are often 'representative', meaning only a proportion of successful applicants receive them. The rate you are actually offered depends on your credit profile.

Term length: the affordability trade-off

Stretching a loan reduces the monthly payment and increases the total cost, because interest accrues for longer on a balance that falls more slowly.

Borrowing 15,000 at 9% over three years costs roughly 2,170 in interest; over seven years it costs roughly 5,340 — for the same amount borrowed.

Choose the shortest term you can service comfortably, and treat the longer term as a fallback rather than a default.

Early repayment, fees, and penalties

Many personal loans allow early settlement, but some charge up to two months' interest as a penalty. Ask for a settlement figure rather than assuming the remaining balance.

Where overpayments are allowed without penalty, they cut interest for the rest of the term. Even irregular lump sums help, because interest is recalculated on the reduced balance.

Watch for loans where interest is pre-computed rather than charged on the reducing balance — early repayment saves much less on those.

Common mistakes when comparing offers

Comparing monthly payments alone. A lower payment usually means a longer term, which is not the same as a cheaper loan.

Ignoring insurance and add-on products bundled into the quote, which inflate the amount financed and therefore the interest.

Forgetting that consolidating debts into one longer loan can reduce monthly outgoings while increasing total cost.

Secured, unsecured, and what changes

Secured loans are backed by an asset, so rates are lower but the asset is at risk if you default. Unsecured loans price that extra risk into the rate.

Car finance sits in between, with the vehicle as security and the balloon payment structures that make headline monthly figures look small.

Whatever the structure, the arithmetic here is the same: a rate, a balance, and a term produce a level payment.

Glossary and verification

Principal: amount borrowed. Instalment: the level monthly payment. Amortisation: the process of repaying principal alongside interest. Settlement figure: what you must pay to close the loan today.

Verify the total repaid by multiplying the payment by the number of months; subtract the principal to recover the total interest figure shown.

If a lender's quote differs from this calculation, the gap is almost always fees, insurance, or a different compounding convention — ask them to itemise.

How the payment is built

An amortising payment is fixed, but its composition changes every month. Early payments are mostly interest because interest is charged on a large outstanding balance; later payments are mostly principal.

This is why the balance falls slowly at first and why paying a loan off early saves less than the remaining months suggest — much of the interest has already been paid.

Extending the term lowers the monthly payment and raises total interest. Shortening it does the reverse. Both trade-offs are visible in the totals the calculator reports.

Rate, APR, and the cost of fees

The interest rate prices the borrowing; the APR folds in compulsory fees and is the fairer comparison between offers. Two loans at the same rate can differ materially in APR.

Arrangement fees added to the balance are themselves charged interest for the whole term, so a fee financed into the loan costs more than the same fee paid upfront.

Variable rates make the quoted payment provisional. Stress-test the payment two or three percentage points higher before committing.

Overpayments and early settlement

An overpayment applied to principal removes all future interest on that amount, which is why early overpayments are worth far more than late ones.

Check whether overpayments shorten the term or reduce the payment. Shortening the term saves substantially more interest.

Some agreements charge early-repayment penalties. Compare the penalty with the interest saved before settling ahead of schedule.

Affordability and verification

Lenders assess total debt service against income; a payment that fits your budget in isolation may still be refused alongside other commitments.

Verify the first month by multiplying the balance by the monthly rate — that is the interest portion, and the remainder of the payment reduces principal.

Verify the total by multiplying the payment by the number of months; subtracting the amount borrowed gives the total interest shown.

Secured and unsecured borrowing

Secured loans are backed by an asset, which lowers the rate but puts that asset at risk if you fall behind. Unsecured loans cost more precisely because the lender has no such claim.

Consolidating several unsecured debts into one secured loan often lowers the monthly payment while raising the total interest and the consequences of default.

Longer terms reduce the monthly figure and increase the total cost, so compare offers on total repayable rather than on monthly payment alone.

Check whether the advertised rate is representative, meaning only a majority of successful applicants receive it, rather than guaranteed.

Fees, insurance, and add-ons

Arrangement fees, documentation fees, and payment-protection products all raise the effective cost and are frequently excluded from the headline rate.

Where a fee is added to the balance rather than paid upfront, you pay interest on the fee for the whole term.

Optional insurance sold alongside a loan should be priced separately and compared with standalone cover before accepting it.

Ask for the total amount repayable in writing; that single figure absorbs every fee and makes offers directly comparable.

Managing repayment

Overpaying early removes interest from the whole remaining term, so the same extra pound saves far more in year one than in the final year.

Confirm whether overpayments reduce the term or the monthly payment, since the first saves considerably more interest.

Missing payments typically adds fees and marks your credit file for years, which raises the cost of everything you borrow afterwards.

If money becomes tight, contacting the lender before a payment is missed usually opens options that disappear once the account falls into arrears.

When this calculator is useful

• Auto loans
• Personal loans
• Comparing lender quotes
• Deciding between term lengths