Loan Calculator

A fixed-rate loan is repaid in equal instalments. Each payment covers the interest owed for that period plus whatever is left to reduce the balance. Because the balance falls, the interest portion shrinks and the principal portion grows — the payment itself stays the same. The payment comes from the amortisation formula:

payment = P × r ÷ (1 − (1 + r)^−n)

Here P is the amount borrowed plus any financed fees, r is the rate per payment period (annual rate ÷ 12, 26 or 52 ÷ 100) and n is the number of payments. A 0% loan is the one case the formula cannot take, so the calculator divides the amount by the periods instead.

Extra repayments are applied to the principal every period, which is what makes them powerful: the interest saved is not the extra money, it is all the future interest that extra principal never accrues. The schedule below shows both effects — when the loan clears, and how much interest you never pay.

Two limits are worth stating. The rate is fixed, so a variable-rate loan will drift from this plan. And the calculator does not know your lender’s early-repayment rules: some charge a fee for paying ahead, and some apply extra money to next month’s instalment rather than to principal. Ask which yours does before relying on the saving shown.

Borrow $10,000 at 6% a year over 60 months:

• Monthly payment: $193.33
• Total interest: $1,599.68
• Total paid: $11,599.68

Now add $100 a month on top. The required payment does not change, but the loan clears in about 38 months and the interest falls to $991 — roughly $609 saved for $3,800 paid early.

Stretching the same loan to 84 months instead lowers the payment to about $146.09 but raises the total interest to roughly $2,271 — a lower monthly figure bought with a longer, more expensive loan. Comparing only the payment hides that trade; the total interest is where it shows.

Every loan has three inputs and one output. The inputs are the amount borrowed, the rate and the term; the output is the total interest. Only one of them is usually still open when you are choosing, and it is rarely the one people look at.

On a $10,000 loan at 6%, the term alone moves the cost by more than double:

Two more years buy $47 a month and cost $671 in interest. That is a defensible trade for someone whose cash flow is tight and an expensive one for someone who simply wanted a smaller number on the offer letter.

The rate matters less than it feels like it should on a small short loan and more than anything else on a long one. The same $10,000 over five years costs $1,050 at 4%, $1,600 at 6% and $2,166 at 8% — so a two-point difference is about $1,100 over the term. On a mortgage over 25 years, the same two points dwarf the loan itself, which is why comparing APRs matters more there and comparing fees matters more here.

When you are comparing offers, put the same amount, the same term and the fees into each, then compare the total paid rather than the monthly payment. The lowest payment is frequently the most expensive loan; it is called that because it sells.

One thing the calculator cannot see: whether early repayment is allowed without penalty. If a lender charges two months’ interest to settle early, the extra-repayment strategy shown in the schedule is worth less than it looks. Ask before assuming the saving.