Loan repayment calculator

The monthly payment is the fixed amount that pays the loan off exactly at the end of the term. Each month, interest is charged on whatever balance remains, the rest of the payment reduces the balance, and next month there is a little less to charge interest on. The split shifts steadily from interest towards capital as the term runs down.

The total interest is simply every payment added up, minus the amount you originally borrowed. A higher rate or a longer term both push that figure up, which is why the chart and the total-repaid line are worth a look before you commit, not just the headline monthly figure.

A monthly payment can always be made smaller, and a showroom or a comparison table will usually do it by stretching the term rather than by lending you less. That is why the payment is a poor thing to choose on. Fix the amount, run the calculator at three different terms, and read the total repaid next to the monthly figure each time. The drop in the payment is what you are being offered. The rise in the total is what it costs.

The second question is whether the thing outlives the debt. A five-year agreement on a car you expect to change after three leaves you paying for it while you are paying for its replacement, and the same applies to a kitchen, a holiday or a wedding financed over seven years. Setting the term against how long you will actually have the thing is a cheap decision to get right at the start and an expensive one to unwind later.

Then check what happens if you want out early. A UK regulated credit agreement normally lets you settle early and gives you a rebate on the interest you have not yet reached, though the settlement figure is calculated by the lender and may include a charge. Ask for it in writing before you sign rather than in year two, because it is the difference between a five-year term you can shorten and a five-year term you cannot.

One comparison worth making before any of this: if you are already carrying a card balance, the rate on that balance is often far higher than the rate on the loan you are looking at. Putting your card figures through the debt payoff calculator tells you what that balance is quietly costing each month, and the answer sometimes reorders what the borrowing is for. A fixed-term loan also does something a card does not: it comes with an end date, and an end date is a commitment to finishing.

That end date is the part a single calculator cannot place for you. Every loan starts and stops on a real month, and the months that hurt are the ones where two of them overlap, or where a new payment begins while the fixed rate on the mortgage is ending. The check worth doing is to put the proposed payment on a timeline with everything else that is already running, note when each one finishes, and look at the worst month rather than the average one. CrestCast forecasts a household that way and lets you place dated changes to income and outgoings, so a new agreement can be judged against the months it actually lands in.