Loan Calculator

What the calculator is doing

Enter an amount, a rate and a term, and this works out the fixed monthly payment that clears the loan exactly at the end of that term. It uses the standard amortisation formula, which is the same arithmetic every lender uses.

The payment is the figure that makes two things true at once: it covers the interest accruing each month, and it retires enough principal that the balance reaches zero on the final payment. That is why changing any one of the three inputs changes the payment — they are locked together.

The schedule below the summary shows the first twelve months split into interest and principal, which is where the behaviour of the loan becomes visible.

Reading the split

Look at month one against month twelve. The payment is identical, but the composition has already started to shift.

Interest each month is calculated on whatever you currently owe, not on the original amount. Since the payment is fixed, whatever the interest does not consume goes to principal. As the balance falls, the interest portion falls with it, so more of the same payment attacks the principal. Repeat that for the full term and the composition inverts completely.

The consequence is that repayment is heavily back-loaded. On a long loan at a typical rate, the first years are mostly interest and the balance moves slowly. The halfway point in time is nowhere near the halfway point in balance.

This matters for two practical decisions:

• Selling or refinancing early leaves you with less equity than the years elapsed suggest
• Overpaying early is worth far more than overpaying late, because there is more future interest to cancel

How loan amortisation works walks through the full thirty-year picture.

The term trade-off

Run the same amount and rate at two different terms and compare. The pattern is consistent and larger than most people expect: a longer term buys a smaller monthly payment and sells you a much larger total.

The monthly payment is the number that gets advertised, quoted, and used to decide affordability. The total interest is the number that tells you what the loan costs. They move in opposite directions, and only one of them appears on the billboard.

A useful discipline when comparing offers: work out the payment and the total for each, and make the decision knowing both. A term that stretches the loan to reach an affordable payment is a legitimate choice, but it should be a choice rather than an accident.

Comparing loans properly

The rate is not the whole cost. Two loans at the same rate can cost meaningfully different amounts once fees are counted, which is what the APR exists to express.

When comparing offers:

• Get the APR for each, not just the interest rate
• Compare loans of the same term; a 15-year and a 30-year are different products and cannot be ranked against each other on APR
• Ask what is inside the fee figure, itemised rather than as a total
• Apply your own expected holding period. APR spreads fees across the full term, so if you expect to repay early, a low-fee loan usually beats a low-rate one

APR vs interest rate explained covers where the APR is useful and where it misleads.

What this calculator does not include

Deliberate omissions, because including them would imply a precision the tool does not have:

• Property taxes and insurance. A mortgage payment quoted by a lender often bundles these into an escrow, so your actual outgoing will be higher than the figure here
• Fees and closing costs, which affect the APR but not the payment
• Mortgage insurance, where a deposit is below the lender's threshold
• Variable rates. This assumes a fixed rate for the whole term. On a tracker or an adjustable-rate loan the payment changes when the rate does
• Interest-only periods, balloon payments, and precomputed interest, all of which follow different schedules

For a fixed-rate personal loan, car loan, or the interest-and-principal portion of a mortgage, the figure here is accurate. For a full mortgage payment, treat it as the largest component rather than the whole.

Rounding, and why your statement may differ by pennies

Lenders round to the cent at each step and may use slightly different day-count conventions, so a real schedule can differ from this one by small amounts, accumulating to a few pounds or dollars over a long term. The final payment is often a slightly different size for the same reason.

That is normal. If your statement differs by a meaningful amount rather than pennies, the likely causes are fees added to the balance, a different rate than you entered, or interest accruing daily rather than monthly.

Using it to make a decision, not just a figure

The calculator answers "what is the payment". The more useful questions are usually comparative, and you can answer them by running it more than once:

1. How much does an extra year of term cost me? Run the same loan at two terms and compare the totals
2. What can I actually afford? Work backwards: try amounts until the payment matches what your budget supports. Our budget planner will tell you what that is
3. Is the shorter term worth the higher payment? Compare the total interest saved against the monthly difference
4. What would overpaying do? Our overpayment calculator models that directly

One caution on affordability: a payment a lender approves is not necessarily one you should take. Lenders assess whether you are likely to repay, using gross income. You repay from net income, and the lender is not testing whether what remains leaves room to save or absorb a shock. That assessment is yours. Debt-to-income ratio explained covers how lenders make theirs.

Before you sign anything

• Check for a prepayment penalty or early repayment charge, which changes the value of overpaying entirely
• Confirm whether the rate is fixed for the full term or only for an initial period
• Ask what the payment becomes if the rate is variable and rates rise
• Check whether fees are payable up front or added to the balance, in which case you pay interest on them too
• Confirm the total repayable, which lenders are generally required to disclose

Using it to compare two real offers

The most useful thing this calculator does is let you put two competing offers on the same footing, because lenders rarely present them comparably.

Open the tool in two browser tabs, enter one offer in each, and compare four figures:

A lower monthly payment on a longer term almost always means a higher total. A lower rate with high fees may lose to a higher rate with none. Neither is visible from the headline.

Then add the fees, which this calculator does not model. If one lender charges an arrangement fee of 1,500 and the other charges nothing, add that to the total repaid before deciding. If the fee is added to the loan rather than paid up front, add it to the amount borrowed instead and re-run, because you will be paying interest on it for the whole term.

A word on affordability versus approval

There is a gap between the largest loan you can get and the largest loan you should take, and it is usually wide.

Lenders assess affordability from gross income against a set of standard ratios. You repay from net income, after tax and deductions, and the lender is not asking whether what remains leaves you room to save, absorb a pay cut, or handle a broken boiler.

Before committing to a payment, run it against your actual take-home figure in our budget planner and see what is left. If the answer is nothing, the loan is affordable to the lender and not to you.

Sharing your figures

The Copy link button puts your inputs into the page address, so you can bookmark a scenario, send it to a partner, or compare two offers by opening them in separate tabs.

Nothing is transmitted to us. The calculation runs entirely in your browser, and your figures never reach a server.