Loan Calculator

Almost every instalment loan — car finance, a personal loan, equipment finance — is priced the same way: a fixed monthly payment that pays off the balance exactly at the end of the term. The calculator above gives you that payment, the total you will repay and the interest inside it.

How it works

Enter the loan amount, the annual interest rate and the term in whole years. Three figures come back:

• Monthly payment — what leaves your account each month.
• Total payment — the monthly payment times the number of months.
• Total interest — the total payment minus the amount you borrowed.

The arithmetic is the standard amortisation formula. The annual rate is divided by 12 to get a monthly rate r, and with n monthly payments:

payment = P × r × (1 + r)^n / ((1 + r)^n − 1)

A 0% rate is handled as a special case — the formula divides by zero there — and simply splits the principal evenly across the term. Everything is rounded to two decimals at the end, and the loan amount, rate and term are each validated, so a zero term or a negative rate produces a message rather than NaN.

Amounts are unitless; the $ in the summary line is display only. Enter euros, pounds or zloty and the arithmetic is identical.

Reading the result

The payment is flat; its composition is not. Every month, interest is charged on the remaining balance. Early on, most of your payment is interest and very little touches the principal; late in the term it is almost all principal. This is why overpaying in year one saves far more interest than the same overpayment in the final year, and why the outstanding balance halfway through a term is always more than half the original.

Total interest is the number to compare. A longer term always looks cheaper per month and is always more expensive overall. Run 10,000 at 6% over three years and over five: the monthly payment falls from 304.22 to 193.33 — about a third cheaper — while the total interest rises from 951.90 to 1,599.68. Both figures are true; only one of them is the price.

The advertised rate is not the whole cost. Arrangement fees, insurance sold alongside the loan and early-repayment charges are outside this calculation. The comparable figure is the APR (or APRC), which is defined to include mandatory fees — that is what a regulated lender must quote, and it is what you should compare between offers. If a headline rate and an APR differ noticeably, the gap is fees.

Rates are per year, not per month. Entering 6 means 6% annually. A monthly rate of 6% is an annual rate of over 100%.

Where the rate comes from

A lender's price is a central-bank policy rate plus a funding spread plus a credit-risk margin, and only the last part is about you. When policy rates move, the fixed-rate offers available to new borrowers move with them within weeks — which is why the "right" time to borrow is mostly a question about the rate environment rather than about your own finances. Introduction to financial markets covers how rates are set and transmitted; payment systems fundamentals explains why monetary amounts are represented as integer minor units in every real settlement system, which is the reason a payment schedule is computed to the cent and never left as a float.

Related tools

For a property purchase with a deposit, the mortgage calculator uses the same amortisation engine and adds the down-payment step. To see what a lump sum grows to rather than what it costs, use compound interest — it is the same exponential, viewed from the other side. To judge whether a financed purchase paid off, use the ROI calculator.