What is amortisation?

The schedule splitting each level payment into interest (balance × rate) and principal (remainder). Early payments are interest-heavy; later ones retire principal faster.

Does overpaying save interest?

Yes — extra payments cut principal directly, so all future interest falls. Even £50/mo extra on a 25-year mortgage can save tens of thousands.

APR vs interest rate — which to compare?

APR includes most fees annualised, so it is the fair comparison across lenders. Use nominal rate only to verify an existing statement's maths.

Why is my first statement mostly interest?

Because interest = full balance × rate while principal is small. On £200k/4.5%, month one's £1,111 is £750 interest, £361 principal — normal amortisation.

Can I afford this loan?

Lenders use debt-to-income: total monthly debts ÷ gross monthly income. Keep it under ~35–40% including the new payment, and stress-test +3 points.

Financial · Free tool

Loan Calculator

Monthly payment, total interest and true cost of any loan.

If you borrow £15,000 at 7.9% over four years, what will you actually pay? Lenders quote an APR, a term and a 'representative' monthly payment, but the total cost also depends on fees and on whether you can pay early. This loan calculator works out the fixed monthly payment, the total interest and the total amount repaid for any amount, rate and term.

Most personal loans, car loans and repayment mortgages are repaid in equal monthly instalments. Early payments are mostly interest; later ones mostly repay the loan itself. Small rate differences add up: on £200,000 over 25 years, 5% instead of 4.5% costs about £17,000 more in interest. That's why comparing APRs, which include most fees, matters more than comparing headline rates.

Enter the amount, the annual rate and the term in years. The calculator assumes monthly payments, a fixed rate and no fees, so use the lender's own illustration to confirm the final figures.

By DailyCalc Editorial Team · Updated 2026-10-03 · 7-min read · 3 sources cited

● Loan calculator

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Loan payment formula (amortising)

M = P × r(1+r)ⁿ ÷ ((1+r)ⁿ − 1), r = APR/12, n = years×12

Each payment covers that month's interest (balance × monthly rate) plus a principal slice. Because balance falls, the interest slice shrinks and the principal slice grows — same payment, shifting mix. At 0% the formula collapses to P ÷ n. Total interest = M×n − P.

P: Principal borrowed (after deposit/part-ex). Exclude fees unless capitalised.
r: Monthly rate = APR ÷ 100 ÷ 12. Assumes monthly compounding; daily-accrual loans differ by pennies.
n: Number of payments (years × 12). Shorter n = higher M but much lower lifetime interest.

Worked example: £15,000 at 7.9% for 4 years

Personal-loan comparison before signing:

Monthly rate: 0.079 ÷ 12 = 0.0065833; payments n = 48.
(1+r)ⁿ = 1.0065833⁴⁸ ≈ 1.3702.
M = 15,000 × 0.0065833 × 1.3702 ÷ 0.3702 ≈ £365.49.
Total repaid: 365.49 × 48 ≈ £17,543.53; interest ≈ £2,543.53.
Month 1: interest 15,000×0.0065833 = £98.75, principal £266.74; month 48: interest ~£2.39, principal ~£363.10.

Result: £365.49/mo — £17,543.53 total — £2,543.53 interest over 48 months.

How to use this loan calculator

Mirror a lender quote in four fields.

Step 1: Enter principal

Amount actually borrowed. For cars, subtract deposit and part-ex; add capitalised fees only if rolled into the loan.

Step 2: Enter annual rate

Use APR (includes fees) when comparing offers; use nominal rate when checking an existing schedule.

Step 3: Enter term in years

Common personal terms: 2–7 years. Mortgages: 15–35. Shorter terms cost more monthly, less overall.

Step 4: Compare totals, not just monthlies

Two loans can share a £365 payment with wildly different totals. Sort by total interest + fees.

When to use it

Situations where knowing the full cost of a loan helps:

Personal loans

£8,000 at 12.9% over three years costs about £269 a month and £1,690 in interest. A 9.9% offer would save around £411, so it's worth asking a second lender.

Car finance

Hire purchase on £18,000 at 6.9% over four years is about £430 a month, and the car is yours at the end. PCP deals cost less each month but finish with a large optional final payment.

Checking a mortgage

£200,000 at 4.5% over 25 years is about £1,112 a month and £133,500 in interest. Overpaying £100 a month would save about £21,000 and clear it three and a half years sooner.

Consolidating debt

Moving credit card balances charging around 24% into a 12% loan can halve the interest, but only if you stop using the cards and stick to the loan term.

Business borrowing

£50,000 at 8% over five years is about £1,014 a month. Lenders often check you could still pay if the rate were three points higher, which here would be about £1,087.

Tips

Ways to borrow more cheaply:

Compare APRs rather than interest rates. The APR includes most fees and is calculated the same way by every UK lender.
A shorter term often costs less overall. On £15,000 at 7.9%, choosing four years instead of five saves about £660 in interest for roughly £62 more a month.
Check the overpayment rules. Many UK personal loans let you overpay freely, while mortgages often cap fee-free overpayments at 10% a year.
Set the payment date just after payday. Missed-payment fees can easily outweigh a small difference in rate.
If you might repay early, ask for the early settlement figure in writing before you sign.

Common mistakes

Misunderstandings that make borrowing more expensive:

Choosing by monthly payment alone

Stretching the £8,000 loan from three years to five cuts the payment from about £269 to £182, but raises the interest from about £1,690 to £2,897.

Ignoring fees

A 6.9% loan with a £495 arrangement fee can cost more than a 7.4% loan with no fee, especially for small or short loans. Add fees to the amount borrowed when you compare.

Dividing the APR by 12

You can't work out the monthly cost by dividing the yearly rate and applying it to the whole loan. The balance falls each month, which the formula already accounts for.

Forgetting add-ons

Payment protection at £12 a month adds £576 over four years. Price it separately and check whether you already have similar cover.

Sources & references

The formula, thresholds and guidance on this page were checked against these primary sources. Written and reviewed by DailyCalc Editorial Team; last updated 2026-10-03. Spotted an error? Tell us.

Disclaimer: Illustrative only — not financial advice. Actual offers depend on credit status, fees, compounding method and lender terms. Check the SECCI/credit agreement before borrowing.

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