Loan Payment Calculator

What the loan payment calculator does

The loan payment calculator works out the fixed instalment on a loan and what the loan will cost in total. Enter the amount you want to borrow, the annual interest rate, the term, and how often you pay, and the tool returns the payment for each period, the total you will repay over the term, and the total interest on top of the amount borrowed. You can check whether a loan fits your budget and compare offers on equal terms before you sign.

How loan repayments are calculated

Most consumer loans are amortized: the payment is the same in every period from the first instalment to the last. Each period you are charged interest on the balance still outstanding, and the rest of your payment reduces that balance.

At the start the balance is at its highest, so a large share of each payment is interest. As the balance shrinks, so does the interest charge, and more of each payment repays what you borrowed; by the final payment, almost all of it is principal. Paying a loan off early therefore saves the most interest in the early years, while the balance and the interest charge are still high.

The calculator uses the standard annuity formula lenders use to set the level payment. It converts your annual rate into a rate per period, counts the payments over the term, and solves for the payment that brings the balance to exactly zero on the final instalment.

The three factors that set your payment

• The more you borrow, the larger every payment and the more total interest you pay. Borrowing only what you need is the simplest way to keep costs down.
• Even a small difference in interest rate has a large effect over a long term, because interest is charged on the outstanding balance every period. Finding a lower rate often saves more than any other single change.
• A longer term spreads the loan over more payments, so each is smaller, but you pay interest for longer and the total cost rises. A shorter term does the opposite.

How to use the calculator

1. Enter the amount you want to borrow.
2. Enter the annual interest rate the lender is offering.
3. Enter the loan term in years.
4. Choose how often you pay: monthly, fortnightly, or weekly.

The tool shows your payment per period, the total you will repay, and the total interest.

Paying more often, such as fortnightly instead of monthly, splits the same annual cost into smaller amounts and can slightly reduce interest, because the balance falls a little sooner each time. The calculator shows the difference for your own numbers.

Comparing loans

A loan with a low monthly payment can still be expensive if the term is long, because you keep paying interest for years. When you compare offers, look at the total interest as well as the payment, and compare loans of the same term.

• Compare the total repaid, not just the monthly figure, so a long, cheap-looking loan does not hide a large interest bill.
• Try a shorter term to see how much interest you save, then check whether the higher payment still fits your budget.
• Lower the rate by a fraction and watch the total cost fall, which shows why it pays to negotiate or shop around.

Common mistakes

• Focusing only on the monthly payment. A low payment can hide a long term and a high total cost.
• Ignoring fees. Arrangement fees, insurance, and charges can raise the real cost, which is why the APR is often higher than the interest rate.
• Borrowing the maximum offered. The fact that you can borrow an amount does not mean the repayment fits comfortably, so leave room in your budget for the unexpected.

A smaller loan, a lower rate, or a shorter term each reduce what you pay. Set a payment you can sustain, then work back to the amount and term that fit it.

This article is general information only and is not financial advice.

About This Loan Payment Calculator

Use this loan payment calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.