Loan Interest Calculator
Calculate total interest paid over the life of any loan.
What this calculator does
This loan interest calculator strips a loan back to the question that matters: what does the borrowing cost? Enter the amount, the interest rate, and the term, and it returns the monthly repayment, the total interest over the life of the loan, and the total amount repayable, with an overpayment field showing how much interest additional payments remove.
Lenders advertise the monthly figure because it is the smallest number in the deal. The total interest column is the one that shows what the loan actually costs, and on longer terms the gap between those two impressions of the same product is wide enough to change the decision.
When to use it
Run it whenever a lender offers a choice of term. A three-year and a five-year quote on the same balance look like a question about affordability and are really a question about cost, and the difference is usually larger than borrowers expect.
It also settles the overpay-or-save question. Comparing the interest a £100 monthly overpayment removes against what £100 a month would earn at current savings AERs is a direct comparison, and with UK loan rates well above easy-access savings rates the answer is usually to overpay — once your emergency fund is in place. Finally, use it in reverse: knowing the total interest tells you the real price of whatever you are borrowing for.
Understanding the inputs
Loan amount is the capital advanced at the outset. Interest rate should be the rate you have actually been quoted after an eligibility check, not the representative APR from the advert, which only 51 percent of accepted applicants need to receive.
Term in years determines the number of monthly payments and has the biggest single effect on total interest. UK personal loans typically run one to seven years, with car and home improvement borrowing clustering at three to five. The extra monthly payment field models overpayments applied directly to the capital — check whether your lender treats them as capital reductions or as advance payments, because only the former saves interest.
How is this calculated?
Total Interest = (Monthly Payment × Total Months) − Principal. Monthly Payment = P[r(1+r)^n]/[(1+r)^n-1].
A worked example
Take £12,000 at 6.9 percent over three years. The monthly repayment is about £370 and total interest comes to roughly £1,319, so you repay around £13,319.
Spread the same £12,000 over five years and the repayment falls to about £237 — £133 a month easier. But total interest rises to roughly £2,223. Those two extra years add around £904 in interest, meaning the borrower pays £904 to lower the monthly figure. That can be the right call if the £133 is protecting a thin budget, but it should be a deliberate choice rather than a default.
Limitations and assumptions
This assumes a fixed rate, monthly compounding, and no fees. Arrangement fees, late payment charges, early settlement interest of up to 58 days, and optional insurance sold alongside the loan are all excluded. Lenders that calculate interest daily will produce slightly different totals.
It does not model variable-rate borrowing, payment holidays, or the reduced interest that follows an early settlement rebate. For a binding figure, the pre-contract credit information and the loan agreement your lender provides under FCA rules are the documents to rely on.
Common Questions
- How is interest charged on a UK loan?
- On a standard amortising loan, interest accrues on the outstanding balance and is deducted from each monthly payment before the remainder reduces the capital. Because the balance falls every month, so does the interest portion. Some lenders calculate daily and charge monthly, which produces marginally different figures from pure monthly compounding.
- What is the difference between APR and the interest rate?
- The interest rate determines your repayment. The APR is a standardised figure required by the FCA that includes compulsory fees and charges, so it lets you compare products fairly. For a fee-free personal loan the two are effectively identical; where there is an arrangement fee, the APR will be the higher number.
- What is AER and when does it apply?
- AER is the savings-side equivalent of APR, showing the annual equivalent rate once compounding is accounted for. You will see it on savings accounts and ISAs rather than loans. On borrowing, the FCA requires APR; on savings, AER. Comparing a loan APR against a savings AER is the right way to test whether overpaying beats saving.
- Does overpaying a loan actually save money?
- Yes, because interest is charged on what remains outstanding. Overpayments reduce the capital immediately, removing all future interest that capital would have generated. Under the Consumer Credit Act you have a right to make partial early settlements, though on loans running more than 12 months the lender may charge up to 58 days' interest.
- Why does a longer term cost so much more?
- You hold the money longer and repay capital more slowly, so interest compounds against a higher balance for more months. On £12,000 at 6.9 percent, three years costs about £1,319 in interest and five years about £2,223 — the interest bill rises by roughly 69 percent while the amount borrowed stays the same.
- What happens to my loan if the Bank of England base rate moves?
- Nothing, on a fixed-rate personal loan — the rate is set for the term. Base rate moves affect tracker mortgages, variable-rate credit cards, and the pricing of new loans rather than existing fixed agreements. If your borrowing is variable, model a two-point rise before assuming today's payment is the payment you will always make.
- Should I overpay the loan or put money in savings?
- Compare the loan APR against the savings AER after tax. Overpaying a 7 percent loan is a guaranteed 7 percent return with no tax due, which almost no savings account matches. The exception is keeping an emergency fund intact — money in a loan is very hard to get back if you need it.
- Is loan interest ever tax deductible in the UK?
- Not for ordinary personal borrowing. There is no UK equivalent of a personal deduction for car loan or credit card interest. Relief exists for genuine business borrowing, and landlords receive a basic-rate tax credit on finance costs rather than a full deduction. Personal loan interest is a straight cost.