What an actuarial loan is
An actuarial loan, also called an annuity loan, is repaid in equal monthly payments. Each payment covers that month's interest on the balance still owed, and the rest pays off the loan.
Because the balance is highest at the start, early payments are mostly interest. As the balance falls, the interest part shrinks and more of each payment repays the loan, until it is cleared at the end of the term.
Worked example
Borrowing £20,000 at 6% over 5 years costs £386.66 a month, £23,199.36 in total, so £3,199.36 is interest.
In the first month, interest is £100.00 (£20,000 at one twelfth of 6%), so £286.66 of the payment reduces the loan. Over 3 years instead, the payment rises to £608.44 but the interest falls to £1,903.79.
Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Actuarial versus flat-rate loans
Some loans are quoted with a flat rate, charged on the original amount for the whole term. An actuarial loan only charges interest on what you still owe, so a flat rate and an actuarial rate with the same number are not the same cost. Compare APRs and the total amount repayable.
Inputs for the actuarial loan calculator
Amount to borrow
The amount you want 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.
CALCULATOR QUESTIONS
Actuarial loan calculator questions
What is an actuarial loan?
A loan repaid in equal monthly payments, where interest is charged on the balance still owed. It's also called an annuity or repayment loan.
How is the monthly payment worked out?
With the standard annuity formula, which finds the level payment that clears the loan and its interest by the end of the term. The calculator does this for you.
Why is most of my early payment interest?
Interest is charged on what you owe, which is highest at the start. In the example, the first month's interest is £100.00 of the £386.66 payment.
Is an actuarial rate the same as a flat rate?
No. A flat rate is charged on the original amount for the whole term, so it costs more than the same actuarial rate.