Loan Repayment Calculator

Loan Repayment Guide

APR vs Flat Rate Interest

APR (Annual Percentage Rate) is the true cost of borrowing and includes all fees. Always compare loans using APR, not flat rate. A loan advertised at '5% flat rate' actually has an APR of approximately 9–10% because you're paying the same interest amount even as your balance reduces. APR is the legally required comparison figure in the UK and EU.

How Monthly Payments Are Calculated

Monthly payment = P × (r(1+r)^n) / ((1+r)^n − 1), where P is the principal, r is monthly interest rate, and n is months. In the early months, most of your payment goes to interest. In the final months, most goes to principal. This is called amortisation — which is why extra payments early in the loan save significantly more interest than the same payment made later.

When to Make Extra Payments

Extra payments reduce the outstanding balance immediately, meaning less interest accrues on the next cycle. On a 3-year £10,000 loan at 6.5%, paying an extra £100/month from month 1 saves approximately £280 in interest and pays off the loan 10 months early. Check your loan agreement for early repayment charges — most UK personal loans allow overpayments without penalty.

Best and Worst Loan Uses

Lowest risk: consolidating higher-rate debt into a single lower-rate loan. Generally acceptable: essential purchases (car for work, necessary home repair). Poor use: discretionary spending, holidays, or items that depreciate quickly. The true cost test: does the total interest paid justify the purchase? A £500 holiday loan at 20% APR over 2 years costs £110 in interest — ask if that's worth it.