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.

Borrow £15,000 at 7.9% for 4 years — is that £365 a month and £2,500 of interest, or far more? Lenders quote APR, term and 'representative' payments, but the true cost hides in compounding frequency, fees, and whether overpayments are allowed. This loan calculator converts any principal, annual rate and term into a fixed monthly payment, lifetime interest, and total repaid, with a first-year amortisation glimpse showing how little of early payments touches principal.

Fixed-rate amortising loans — personal loans, auto loans, most mortgages' repayment phases — use the classic annuity formula: level payments where early instalments are interest-heavy and later ones principal-heavy. A 0.5-point rate difference on £200,000 over 25 years moves total interest by ~£17,000, which is why comparing APR (which annualises fees) matters more than comparing headline rates. The tool assumes monthly compounding, no fees, and no overpayments unless you model them as a shorter term.

Enter amount, annual rate (APR for comparison), and years. The result is what a lender's schedule should match to the penny — screenshot it and challenge any quote that does not.

Updated 2026-09-01 · 7-min read · Formula + steps included

● Loan workstation

Financial →

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 ≈ 1.3709.
M = 15,000 × 0.0065833 × 1.3709 ÷ 0.3709 ≈ £365.42.
Total repaid: 365.42 × 48 = £17,540.16; interest = £2,540.16.
Month 1: interest 15,000×0.0065833 = £98.75, principal £266.67; month 48: interest ~£2.39, principal ~£363.03.

Result: £365.42/mo — £17,540.16 total — £2,540.16 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.

Use cases

Where amortisation maths protects you:

Personal loans

£8,000 at 12.9% over 3y = £269/mo, £1,684 interest. A 9.9% offer saves ~£360 — worth one phone call.

Auto finance

Compare PCP balloon vs HP: HP £18k/6.9%/4y ≈ £430/mo owned outright; PCP lower monthly but balloon or return looms.

Mortgage sense-check

£200k at 4.5% over 25y ≈ £1,111/mo, £133k interest. Overpaying £100/mo saves ~£22k and 3 years.

Debt consolidation

Rolling 3 cards (avg 24%) into one 12% loan halves interest — but only if you close the cards and fix the term.

Business borrowing

£50k at 8% over 5y = £1,014/mo. Lenders stress-test at +3 points: can you afford £1,087?

Pro tips

Borrow like a treasurer:

Compare APR, not flat rates — APR annualises fees and is legally standardised for comparison.
Shorten, don't just overpay randomly: moving 5y→4y on £15k/7.9% saves ~£640 interest for +£62/mo.
Check overpayment terms: many UK personal loans allow unlimited extra payments; mortgages often cap at 10%/yr fee-free.
Fix the payment date just after payday to avoid missed-payment fees that dwarf rate differences.
Get the amortisation table in writing — early-settlement figures must follow the Consumer Credit Act rebate rules.

Common mistakes

Expensive misunderstandings:

Shopping by monthly alone

Stretching 3y→5y cuts £269 to £179/mo but nearly doubles interest (£1,684→£2,740). Always read the total line.

Ignoring fees

A '6.9% + £495 fee' can exceed '7.4% fee-free' on small/short loans. Add fees to principal when comparing.

Confusing APR with monthly rate

7.9% APR is not 7.9 ÷ 12 added to balance naively — compounding is already in the annuity formula. Trust the tool, not mental division.

Forgetting insurance add-ons

Payment protection at £12/mo adds £576 over 4y. Price it separately and check existing cover first.

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.

FAQs