How loan interest is calculated
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 £10,000 at 7% over 5 years costs £198.01 a month and £1,880.72 in interest, 18.8% of the amount borrowed. £645.16 of that is paid in the first year.
Repaying over 3 years instead cuts the interest to £1,115.75, though the payment rises to £308.77. At 10% over 5 years, the interest would be £2,748.23.
Ways to pay less interest
Borrow only what you need, choose the shortest term you can afford and compare rates. Paying off early also saves interest, though some lenders charge for it, so check the terms.
Inputs for the loan interest 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. A longer term means paying interest for longer.
CALCULATOR QUESTIONS
Loan interest calculator questions
How do I calculate the interest on a loan?
Work out the monthly repayment, multiply by the number of months, and subtract the amount borrowed. The calculator does this for you.
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.
What's the difference between the interest rate and the APR?
The interest rate is what's charged on the balance. The APR also includes most compulsory fees, so it's better for comparing the overall cost of different loans.
Does a shorter loan save interest?
Yes. In the example above, 3 years instead of 5 saves £764.97 of interest.