Loan Calculator

What Is a Loan Calculator?

A loan calculator is a financial tool that estimates how much you may need to repay each month when borrowing money. By entering the loan amount, annual interest rate and repayment term, you can estimate the monthly payment, total interest and total amount repaid.

This loan calculator is designed for standard amortising loans with a fixed annual interest rate and regular monthly repayments. It can help you compare different borrowing amounts and repayment periods before examining the specific terms offered by a lender.

Why Use Loan Calculator?

Loan costs can be difficult to compare when looking only at the advertised interest rate or monthly payment. A loan calculator provides a clearer estimate by showing both the regular payment and the overall cost of borrowing.

How to Use the Loan Calculator

Enter the three main loan details to estimate your monthly repayment and overall borrowing cost.

1. Enter the loan amount — Enter the amount you intend to borrow, such as £10,000.
2. Enter the annual interest rate — Enter the annual interest rate as a percentage, such as 6.5 for 6.5%.
3. Enter the repayment term — Enter the number of years over which the loan will be repaid.
4. Calculate the loan — Select “Calculate Loan” to see the estimated monthly payment, total interest and total repayment.

How Loan Payments Are Calculated

For a standard fixed-rate amortising loan, each monthly payment consists of an amount that contributes towards the outstanding principal and an amount covering interest. As the principal balance decreases, the interest portion of subsequent payments generally decreases while more of each payment goes towards the principal.

The monthly payment is calculated from the loan principal, monthly interest rate and total number of payments. The calculator then multiplies the monthly payment by the number of payments to estimate the total repayment and subtracts the original loan amount to determine the estimated total interest.

Loan Payment Formula

The standard amortising loan formula is M = P × [r(1 + r)ⁿ] / [(1 + r)ⁿ − 1]. Here, M is the monthly payment, P is the principal, r is the monthly interest rate and n is the total number of monthly payments.

How Interest Rate and Term Affect a Loan

A higher interest rate generally increases both the monthly payment and the total interest paid. Extending the repayment term can reduce the required monthly payment, but it can also increase the total interest paid because interest is charged over a longer period.

Loan Calculator Information

This calculator assumes a fixed annual interest rate, monthly compounding and equal monthly repayments. It is intended for estimates and comparisons rather than as a quotation for a particular financial product.

Actual loan repayments can vary depending on the lender, repayment schedule, interest calculation method, fees, charges, taxes, insurance, credit terms and whether the interest rate changes during the loan. Always check the full terms of a loan before borrowing.

Frequently Asked Questions