How to Calculate Loan Repayments

What determines your loan repayment?

A typical loan repayment depends mainly on how much you borrow, the interest rate and the repayment term. Borrowing more or paying a higher rate usually increases the monthly payment. Extending the term can reduce the monthly payment but may increase the total interest paid.

Fees can also affect the real cost of a loan, so the monthly repayment should not be the only figure you compare.

Want to try the idea yourself? Use the Loan Repayment Calculator.

How repayment loans work

With a standard repayment loan, each payment usually contains both interest and repayment of the amount borrowed. Early in the term, a larger share may go towards interest. As the balance falls, more of later payments can go towards reducing the principal.

The exact calculation depends on the loan structure and how the lender applies interest.

If you want to explore this topic further, see How Do Mortgage Repayments Work?.

Simple example

Imagine borrowing £10,000 over three years. A 0% loan would simply divide £10,000 across 36 monthly payments, or about £277.78 a month. Once interest is added, the monthly payment must be higher because you are repaying both the £10,000 and the cost of borrowing it.

This is why comparing a £10,000 loan at 5% with one at 10% can produce a meaningful difference even though the amount borrowed is identical.

Monthly payment vs total repayment

A lower monthly payment is not automatically a cheaper loan. A longer term spreads the debt over more months, which can make each payment easier to manage while allowing interest to run for longer.

Compare the monthly payment, total interest and total amount repaid together.

Estimate repayments before borrowing

The Loan Repayment Calculator lets you change the loan amount, rate and term to see how the estimated payment responds. Try a few realistic terms to understand the trade-off between monthly affordability and overall cost.

Calculator results are estimates. For an actual loan, use the lender’s quoted APR, fees and repayment schedule before making a decision.