How loan repayments are calculated
Most loans are repaid in equal monthly instalments. Each payment covers that month's interest and repays part of the amount you borrowed, so the balance reaches zero at the end of the term.
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.
Worked example
Borrowing £10,000 at 7% over 5 years costs £198.01 a month. You'd repay £11,880.72 in total, so the loan costs £1,880.72 in interest.
Comparing loans
When comparing loans, look at the APR, which includes the interest rate and most compulsory fees, and at the total amount repayable. A lower monthly payment over a longer term can cost more overall.
Advertised 'representative' APRs only have to be offered to at least 51% of successful applicants, so the rate you're offered may be higher. Use the rate from your own quote for an accurate figure.
Inputs for the loan calculator
Amount to borrow
The amount you want to borrow, in pounds.
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. 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.
Term
How many years you'll repay the loan over.
CALCULATOR QUESTIONS
Loan calculator questions
How are monthly loan repayments worked out?
They're set so that equal monthly payments cover the interest and repay the loan by the end of the term. The calculator uses the standard formula for this.
Does a longer loan cost more?
Usually, yes. Spreading a loan over more years lowers each payment, but you pay interest for longer, so the total cost rises.
What's the difference between the interest rate and the APR?
The interest rate is what you're charged on the amount borrowed. The APR also includes most compulsory fees, which makes it better for comparing loans.
Can I pay my loan off early?
Usually. For most consumer loans in the UK you have the right to repay early, though the lender may charge a limited amount of extra interest. Check your loan agreement.