Loan Calculator

What determines a loan payment

Four inputs, and only four: the amount borrowed, the interest rate, the term, and the payment frequency. Everything a lender adds beyond that — fees, insurance, add-ons — sits on top rather than changing the underlying arithmetic.

The payment is set so the loan reaches exactly zero at the end of the term. Early payments are mostly interest; later ones are mostly principal. That shift is the defining behaviour of an amortising loan.

APR is the number to compare, not the rate

The interest rate covers interest only. APR folds in mandatory fees and gives a figure you can compare across lenders. A 5.9% rate with a large arrangement fee can easily cost more than a 6.3% rate with none.

Two APRs are only comparable when the terms match. A 3-year loan at 7% and a 5-year loan at 7% have the same rate and very different total costs — the longer loan costs substantially more interest for a lower monthly payment.

The trade-off nobody states plainly

Extending a term always reduces the monthly payment and always increases total interest. Both halves of that sentence are true simultaneously, and lenders advertise the first half.

If a longer term is the only way to make a payment affordable, that is useful information about the size of the purchase, not just about the loan.

Overpaying

Any payment above the scheduled amount comes off the principal directly, and therefore removes all future interest that principal would have generated. Two things to check first:

• Early repayment charges. Some fixed-rate agreements penalise overpayment.
• How the lender applies it. Ask for it to reduce the *balance*, not to be

held as a credit against future payments — the two have very different effects.

Secured versus unsecured

Secured loans are backed by an asset and carry lower rates because the lender's risk is lower. The asset can be taken if you default. Unsecured loans cost more and put no specific asset at risk, though default still has serious consequences.

Before signing

• Total repayable, not just the monthly figure
• APR rather than the headline rate
• Whether the rate is fixed or variable
• Early repayment terms
• What happens if a payment is missed

For mortgages specifically, use the mortgage calculator, which handles tax, insurance and PMI as separate components.