How an interest-only short-term loan works
Each month you pay interest on the amount outstanding. Because you repay none of the capital until the end, the amount does not fall, so the interest is the same every month. The final payment is the last month's interest plus the whole amount borrowed. Short-term lenders such as bridging lenders usually quote a monthly rate, while a mortgage quotes a yearly rate, so this page accepts both.
On £50,000 at 0.85% a month for 12 months with no fee, the monthly payment is £425.00. Total interest is £5,100.00 and the final payment, with the amount borrowed, is £50,425.00. The effective APR is 10.69%.
Fees change the real cost
A 2% arrangement fee is £1,000. If it is taken from the loan you receive £49,000 but still pay interest on £50,000. Fees are then £1,000.00, the total cost of borrowing is £6,100.00 and the effective APR rises to 13.06%. If the fee is added to the loan, you receive £50,000 and owe £51,000, so the monthly payment is £433.50 and the APR is 13.01%.
The APR here is the effective annual rate of the cash flows: the amount you receive, the monthly interest payments and the final repayment. A lender's quoted APR follows the rules for its product, so treat this as an estimate.
A yearly rate instead of a monthly rate
By default a yearly APR is converted to a monthly rate as one plus the APR, raised to the power of one twelfth, less one. £100,000 at 6% APR over 12 months with no fee has a monthly payment of £486.76. The APR convention field, shown when you quote a yearly rate, can divide the APR by 12 instead, as many UK sites do. On £50,000 at 10.7% APR over 12 months with no fee, the monthly payment is £425.36 on the default Effective APR (FCA) and £445.83 divided by 12, and the effective APR shown is 10.70% or 11.24%.
Interest-only versus equal instalments
Interest-only payments are lower, but you pay more interest in total and the debt remains until the end. On £50,000 at 0.85% a month for 12 months with the fee taken from the loan, equal instalments would cost £4,400.45 a month and £2,805.36 in interest, compared with £5,100.00 on interest-only. You must be able to repay or refinance the whole amount at the end.
For payday-style rates, use the short-term loan interest calculator.
For a US loan, see the US short-term interest-only loan calculator.
Inputs for the UK short-term interest-only loan calculator
Fee is
Taken from the loan means you receive less. Added means the fee is borrowed and earns interest.
Rate quoted per
Choose a monthly rate or a yearly APR. A yearly APR is converted to a monthly rate.
Amount borrowed
The amount you borrow and repay in full with the last payment.
Monthly interest rate
Percent of the loan charged each month.
Yearly interest rate (APR)
The APR on your offer, as an effective yearly rate.
APR convention
Shown when the rate is quoted per year. Effective APR (FCA) is the default and follows the FCA APR rule. APR divided by 12 is how many UK sites work and gives a slightly higher monthly rate.
Loan term
The number of monthly interest payments, from 1 to 60.
Arrangement fee
Percent of the amount borrowed, charged when the loan starts. Enter 0 for none.
Exit fee
Percent of the amount borrowed, paid with the last payment. Enter 0 for none.
CALCULATOR QUESTIONS
UK short-term interest-only loan calculator questions
How do you calculate interest-only payments?
Multiply the balance by the monthly rate. £50,000 at 0.85% a month is £425.00 a month.
What do I pay at the end of an interest-only loan?
The last interest payment plus the whole amount borrowed. On £50,000 that is £50,425.00 in the example.
How much does a fee add to the APR?
A 2% arrangement fee taken from the loan lifts the effective APR from 10.69% to 13.06% on the 12-month example.
Is an interest-only loan cheaper than repaying monthly?
Each payment is lower, but total interest is higher because the amount does not fall. In the example equal instalments cost £2,805.36 in interest against £5,100.00.