APR (Annual Percentage Rate) is the total annual cost of borrowing expressed as a percentage, including interest and compulsory fees.

Fixed vs variable rate — what is the difference?

A fixed-rate loan has the same interest rate throughout, giving predictable payments. A variable rate changes with the market, so payments can go up or down.

What is amortisation?

Amortisation is paying off a loan through regular scheduled payments. Early payments are mostly interest; later payments are mostly principal.

Loan Calculator — Monthly Payments & Total Interest

Loan amount

Annual interest rate

Loan term

yrs

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Monthly payment

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Total paid

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Total interest

Year	Principal	Interest	Balance

About the Loan Calculator

A loan calculator computes the monthly repayment, total interest, and total cost of any fixed-rate instalment loan given the principal amount, annual interest rate, and term. Whether for a personal loan, car finance, or any other credit facility, the annuity formula applies: each payment covers the month's interest on the outstanding balance plus a portion of the principal.

How monthly loan payments are calculated

The annuity formula is: M = P × r(1+r)⊃n⊃ ÷ ((1+r)⊃n⊃ − 1), where P is the principal, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. Early payments are mostly interest; later payments are mostly principal — this is how amortisation works.

Key factors that affect total loan cost

Interest rate (APR) — the biggest driver of total cost. A 2% difference on a 10,000 loan over 5 years changes the total cost by over 500.
Loan term — longer terms mean smaller monthly payments but significantly more total interest paid.
Early repayment — paying extra each month reduces the balance faster, saving interest. Always check for early repayment charges first.

Loan comparison: APR vs total cost

When comparing loans, APR (Annual Percentage Rate) is the most useful single figure as it incorporates fees into a standardised rate. However, total cost over the full term is the most directly comparable figure when loans have the same term. A shorter-term loan at a slightly higher APR may cost less total interest than a longer-term loan at a lower APR.

APR — standardised rate including all fees; legally required in UK credit advertising
Total cost — (monthly payment x months) + fees - loan amount; the actual pound cost
APRC — Annual Percentage Rate of Charge; used for mortgages, includes arrangement fees
Representative APR — the APR offered to at least 51% of successful applicants; your rate may differ

Frequently Asked Questions

How is a monthly loan payment calculated?

Use the annuity formula: M = P x r(1+r)^n / ((1+r)^n - 1), where P is the loan amount, r is the monthly interest rate (annual rate / 12), and n is the number of monthly payments. For a 5,000 loan at 8% APR over 3 years: r = 0.00667, n = 36, M = 156.69 per month.

What is the difference between APR and interest rate?

The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus all fees (arrangement fees, broker fees) expressed as a single annual percentage. APR is the more accurate measure of total borrowing cost and is the figure legally required in UK loan advertising.

Should I choose a shorter or longer loan term?

A shorter term means higher monthly payments but much less total interest paid. A longer term lowers monthly payments but increases total cost significantly. Choose the shortest term whose monthly payment you can comfortably afford. Avoid extending the term just to reduce monthly payments.

What is an amortisation schedule?

An amortisation schedule shows how each monthly payment splits between interest and principal reduction. In early payments, most goes to interest. As the balance reduces, more of each payment goes to principal. The schedule lets you see exactly how the outstanding balance reduces over the loan term.

How can I reduce the total interest on a loan?

Make overpayments when possible. Every extra payment reduces the principal, which reduces future interest charges. Even small regular overpayments can save hundreds in interest on a long loan. Check your loan agreement for early repayment charges before overpaying.