How interest-only payments are worked out
While a loan is interest only, each month's payment is the balance times the monthly rate, so the balance never falls. UK lenders quote the APR; the monthly rate is (1 + APR)^(1/12) − 1 (FCA CONC App 1.2).
When the interest-only period ends, the whole amount is repaid over the years left, so those payments are higher than on a loan repaid from the start.
Worked example
You borrow £25,000 at 8% APR over 10 years, interest only for the first 3. You pay £160.85 a month, then £386.19 a month for the last 7 years. Interest totals £13,230.37.
On full repayment from the start you'd pay £299.64 a month and £10,957.26 of interest, so the interest-only years cost £2,273.11 more. Interest only for all 10 years costs £19,302.09 of interest, and you still owe the £25,000 at the end.
Is interest only a good idea?
Lower payments help while money is tight, for example during a building project or while waiting for a sale. But you pay more interest overall and need a firm plan to repay the amount.
What this calculator assumes
A fixed rate for the whole term and monthly payments. Interest-only mortgages and bridging loans follow their own lender rules and fees.
Borrowing in the US?
The country choices above the inputs open separate local pages. US lenders charge the note rate divided by 12, so the same quoted rate gives a slightly different payment. Choosing United States opens that page and resets the inputs; amounts are not converted.
For a loan from a US lender, use the US interest only loan calculator in US dollars.
Inputs for the UK interest only calculator
Amount borrowed
How much you're borrowing, in pounds.
APR
The APR on your quote. We turn it into a monthly rate the way UK lenders do.
Full loan term
How long the whole loan runs, including the interest-only years.
Interest-only period
The years you pay only interest. Set it to the full term for a loan repaid in one lump at the end.
CALCULATOR QUESTIONS
UK interest only calculator questions
How do I calculate interest-only payments?
Multiply the amount borrowed by the monthly rate. At 8% APR the monthly rate is about 0.643%, so £25,000 costs £160.85 a month.
What happens when the interest-only period ends?
You start repaying the amount as well as interest, over the years left. The payment jumps, because the full amount is squeezed into a shorter time.
Is interest only cheaper?
Only month to month. Because the balance doesn't fall, you pay interest on the full amount for longer, so the total interest is higher.
Can I pay off an interest-only loan early?
Usually yes. Check your agreement for early repayment charges.