When compound interest applies to a personal loan
Most personal loans are repaid in fixed monthly instalments. Each payment covers that month's interest and pays off some of the balance, so interest is charged on a falling amount. If you're repaying normally, the personal loan interest calculator or personal loan calculator will show your real cost.
Compound interest builds up a balance when you aren't repaying, such as during a payment holiday, or if a loan is left unpaid. Interest is added to the balance and then charged on itself, so the debt grows faster over time. This calculator assumes nothing is repaid during the time period.
Worked example
Borrowing £8,000 at 9% a year, compounded monthly, with nothing repaid for 3 years, you'd owe £10,469.16 at the end. That's £2,469.16 of interest, and a balance 1.31 times the amount you borrowed.
Repaid in equal monthly instalments over the same 3 years at the same rate, the loan would cost £254.40 a month and £1,158.32 in interest. Repaying as you go costs much less, because interest is charged on a balance that's going down.
Missed payments and extra charges
If you miss payments, lenders may add late payment fees and default charges as well as interest, and it can harm your credit record. These aren't included here. If you're struggling to repay, speak to your lender early and consider free debt advice.
Inputs for the personal loan compound interest calculator
Amount borrowed
The balance you start with, such as the amount you borrowed or the amount you owe now.
Annual interest rate
The yearly interest rate on the loan. The rate shown is only an example, so enter the rate from your loan agreement.
Time period
How many whole years the balance builds up with nothing repaid.
Interest compounds
How often interest is added to the balance: daily, monthly, quarterly or annually. Check your loan agreement if you're not sure.
CALCULATOR QUESTIONS
Personal loan compound interest calculator questions
Do personal loans use compound interest?
Interest is usually charged on the outstanding balance, which falls as you make your monthly repayments. Interest only compounds into a growing balance when repayments stop or are paused.
How much would an unpaid £8,000 loan grow to?
At 9% compounded monthly, it would grow to £10,469.16 after 3 years if nothing were repaid.
How much interest would I pay if I repay normally?
£8,000 at 9% repaid monthly over 3 years costs £254.40 a month and £1,158.32 in interest. Use the personal loan calculator to try your own figures.
Does a payment holiday cost more?
Usually, yes. Interest normally keeps being added while you pause payments, so you'll owe more and pay more interest overall.