How business loan interest works
Interest is worked out each month on the balance you still owe, at one twelfth of the annual rate. Early payments are mostly interest; as the balance falls, more of each payment repays the loan.
Lenders may calculate interest differently (some charge it daily), so your actual interest can differ slightly.
Worked example
Borrowing £50,000 at 8% over 5 years costs £10,829.18 in interest, £3,693.83 of it in the first year. Over 10 years the payment drops to £606.64 a month, but the interest rises to £22,796.56.
Interest and tax
Interest on borrowing for business purposes is generally an allowable expense for tax. Check with your accountant how it applies to your business.
Inputs for the business loan interest calculator
Amount to borrow
The amount the business wants to borrow.
Interest rate (per year)
The annual interest rate on your loan. The rate shown is only an example, so enter the rate from your quote.
Term
How many years you'll repay over. A longer term means paying interest for longer.
CALCULATOR QUESTIONS
Business loan interest calculator questions
How much interest will a £50,000 business loan cost?
At 8% over 5 years, £10,829.18. Enter your own figures above.
Is business loan interest tax deductible?
Generally, interest on business borrowing is an allowable expense. Check with your accountant.
Why do I pay more interest at the start?
Interest is charged on the balance you owe, which is highest at the start. As you repay, the balance falls and so does the interest.
Does this include fees?
No. Add any arrangement fees from your offer to see the full cost.