Payment Calculator

A payment calculator works out the monthly repayment on any loan based on the principal, interest rate, and term. It is used by anyone comparing loan options, working out what they can afford to borrow, or checking whether a lender's quoted payment is correct.

How to Use the Payment Calculator

1. Enter the loan amount (the principal you want to borrow).
2. Enter the annual interest rate as a percentage.
3. Enter the loan term in months or years.
4. Click calculate to see the monthly payment, total interest paid, and total amount repaid.

The Formula

Monthly payment uses the standard amortisation formula:

M = P x (r(1 + r)^n) / ((1 + r)^n - 1)

Where M is the monthly payment, P is the principal, r is the monthly interest rate (annual rate divided by 12, expressed as a decimal), and n is the total number of monthly payments. Total interest equals (M x n) - P.

Real-World Example

You borrow £10,000 at 7.5% APR over 36 months.

• Monthly rate: 7.5% / 12 / 100 = 0.00625
• Monthly payment: 10,000 x (0.00625 x (1.00625)^36) / ((1.00625)^36 - 1)
• Monthly payment: approximately £311
• Total repaid: £311 x 36 = £11,196
• Total interest: £1,196

Extending to 60 months reduces the payment to approximately £201 but increases total interest to £2,060. Choosing the shorter term saves £864 in interest.

Comparing Loan Terms

The term you choose affects both your monthly budget and the total cost of the loan. A shorter term means higher monthly payments but lower total interest. A longer term reduces monthly payments but you pay significantly more over time. For most personal loans, the optimal term balances affordability with minimising interest cost. A useful rule: if extending the term by 12 months saves less than £30 per month but adds more than £300 in total interest, the shorter term is almost always the better choice. Also compare the representative APR across lenders: even a 1% difference on a £15,000 loan over 5 years adds up to several hundred pounds in additional interest.

Frequently Asked Questions

What is the difference between APR and the interest rate? The interest rate is the cost of borrowing the principal. The APR (Annual Percentage Rate) includes the interest rate plus any mandatory fees charged by the lender, such as arrangement fees, giving a more complete picture of the true cost. Always compare APRs rather than headline interest rates when shopping for loans.

Does making overpayments reduce my monthly payment? Most personal loans have a fixed monthly payment throughout the term; overpayments reduce the outstanding balance and shorten the loan, but the scheduled payment amount stays the same unless you formally refinance. Some lenders do allow overpayments to reduce future scheduled payments; check the terms of your specific agreement.

What credit score do I need for the best loan rates? Lenders typically reserve their lowest rates for applicants with excellent credit scores (generally 720 or above in FICO terms, or "excellent" in UK credit bureau ratings). However, the rate you receive depends on the full picture: income, existing debts, employment status, and loan amount. Always check your credit file before applying, and use soft-search tools to estimate eligibility without affecting your score.

Can I calculate payments for interest-only loans? Interest-only payments are simply: principal x monthly interest rate. For a £10,000 loan at 7.5% APR, the monthly interest-only payment is £10,000 x 0.00625 = £62.50. The full principal remains outstanding at the end of the term and must be repaid separately.

The first year of the page's own loan

The worked example above borrows £10,000 at 7.5% over 36 months. The monthly rate is 0.00625, and the amortisation formula gives a payment of £311.06. Over the full term that is £11,198.24 repaid, of which £1,198.24 is interest. The page quotes about £311 a month and £1,196 of interest, which is the same answer at the rounding it uses.

What the monthly payment hides is that the split between interest and principal changes every month. Interest is charged on the balance, so the first payment is mostly interest and the last is almost all principal.

The first payment is 20.1% interest. The sixth is 17.6%. By the final month the interest is £1.93, which is 0.6% of the payment, and almost the whole of it reduces the principal. That is the mechanism behind every point made on this page: a longer term lowers the payment but keeps more of each payment going to interest for longer, and a shorter term does the opposite.

The same loan across seven terms

The page compares 36 months against 60. Extending the comparison to the terms a lender normally offers shows the shape of the trade rather than a single point on it.

The page's comparison section quotes a 60 month payment of about £201 and total interest of about £2,060, with a saving of £864 from taking the shorter term. The calculation gives £200.38, £2,022.77 and a saving of £824.53, which is the same comparison at slightly different rounding.

Read as a ladder, the trade is clean. Going from 36 to 48 months costs £407.63 in extra interest to save £69.27 a month. Going from 36 to 84 months costs £1,685.91 to save £157.68 a month. The interest penalty grows faster than the monthly relief does, because every extra month keeps a larger balance outstanding while the payment falls.

Testing the page's twelve month rule

The comparison section offers a rule of thumb: if extending the term by twelve months saves less than £30 a month but adds more than £300 in total interest, the shorter term is the better choice. Applied to each step of the ladder above, the rule fires on the last two steps and stays silent on the first four.

The rule works in the direction it was written for, but the threshold is arbitrary and the real trade is personal. A borrower who needs £40 a month back in the household budget will take the 48 to 60 step despite the £416.90 it adds, because the alternative is a payment they cannot sustain. The rule is a default, not an instruction.

What one percentage point of APR costs

Rate matters more than most borrowers expect on a small loan, and less than they expect on a large one, because the interest bill scales with the balance rather than with the rate alone.

On the page's own loan a full percentage point costs £166.07 over three years, which is £4.61 a month. The comparison section above notes that a 1% difference on a £15,000 loan over five years adds several hundred pounds in interest. The figure is £430.72. Across a wider range of rates on the £10,000 loan over 36 months the interest bill moves from £789.52 at 5% to £2,479.52 at 15%, a range of £1,690 for the same £10,000 of borrowing.

Notice that the payment moves far less than the interest does. The payment column spans £46.94 across the whole range, while the interest column spans £1,690. The monthly figure is the one a borrower feels, and it is the one that hides the cost.

Interest only against amortising

The FAQ above gives the interest-only formula. On the page's loan it produces a very different set of numbers from the amortising version.

The interest-only payment is £248.56 lower, which is why the product exists. Over the three years it also hands over £1,051.76 more in interest, because the balance never falls, and it ends with the whole £10,000 still outstanding. The true cost of the interest-only route over the same period is £12,250.00 when the principal is repaid at the end, against £11,198.24 for the amortising loan.

A lump sum in the middle of the term

Most personal loans allow overpayments without a penalty, and on a short loan a modest lump sum has a disproportionate effect because the balance is already small. Here the £10,000 loan takes an extra payment at month 12, when the balance stands at £6,912.56, and the scheduled payment stays at £311.06.

Doubling the lump from £1,000 to £2,000 saves £125.57 more interest and four further months. The saving grows faster than the lump does, because the second £1,000 is applied to a balance that the first £1,000 has already reduced, and it arrives earlier in the shortened schedule that the first lump created.

What the payment calculation assumes

1. The rate is fixed for the whole term at one twelfth of the annual rate per month. A lender that charges daily interest produces a slightly different total.
2. Payments fall at the end of each month, and the final payment is adjusted to clear the balance exactly.
3. The stated rate is the rate applied to the balance. Where a lender quotes an APR that includes fees, the payment on the loan itself is slightly lower than the APR implies.
4. No arrangement fee is added to the principal, and no early repayment charge applies to the overpayments above.
5. The loan runs to term with no missed payments and no payment holidays.

Change the first assumption and the answer moves by pennies. Change the third and it can move by more, because fees are the difference between a quoted rate and a quoted APR, and a fee of £100 on a £10,000 three year loan is £2.78 a month spread across the term.

Also try these free tools related to Payment Calculator: - Loan Calculator

• Amortization Calculator