How the Repayment Calculator Works
How the Repayment Calculator Works
A repayment calculator shows what it costs to pay back a loan in equal monthly instalments. It works for personal loans, car loans, student loans and any other loan with a fixed interest rate. You can use it in two ways: to find the monthly repayment when you know how long the loan lasts, or to find how long the loan will take when you know how much you can pay each month.
What you enter
- Amount: the money you borrowed, or still owe.
- Annual rate: the yearly interest rate on the loan.
- Term: the length of the loan, in months or years. This is used when you want to find the monthly payment.
- Monthly payment: the amount you can afford each month. This is used when you want to find how long the loan takes.
- Extra payment (optional): an additional amount on top of the normal payment, to see how much sooner you are debt-free.
How the monthly repayment is worked out
The interest rate is turned into a monthly rate by dividing it by 12. Then the calculator uses the standard loan payment formula, where P is the amount, r is the monthly rate and n is the number of months:
monthly payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
If the rate is 0%, there is no interest, so the payment is just the amount divided by the number of months.
How the time to repay is worked out
When you enter a payment instead of a term, the calculator pays the loan off month by month. Each month it charges interest on what you still owe, takes the rest of your payment off the loan, and repeats until nothing is left. The last payment is smaller if less than a full payment remains. The number of months is the answer. If your payment is no bigger than the first month's interest, the loan would never shrink, and the calculator tells you to enter a larger payment.
A worked example
You borrow $20,000 at 7.5% a year and repay it over 48 months. The monthly payment is $483.58. Over the four years you pay $3,211.75 in interest, so the total you repay is $23,211.75. Here is the year-by-year breakdown:
| Year | You pay | Interest | Goes to the loan | Still owed |
|---|---|---|---|---|
| 1 | $5,803 | $1,349 | $4,454 | $15,546 |
| 2 | $5,803 | $1,003 | $4,800 | $10,746 |
| 3 | $5,803 | $631 | $5,172 | $5,574 |
| 4 | $5,803 | $229 | $5,574 | $0 |
Chart: what you still owe
This chart shows the same loan. The longer the bar, the more you still owe at the end of that year.
Start ████████████████████████████████████████ $20,000 Year 1 ███████████████████████████████ $15,546 Year 2 █████████████████████ $10,746 Year 3 ███████████ $5,574 Year 4 (paid off)
Chart: interest gets smaller every year
Each month the interest is charged on the amount you still owe. As the balance falls, so does the interest, and more of every payment goes to the loan itself. The bars show the interest you pay in each year:
Year 1 ████████████████████████████████████████ $1,349 Year 2 ██████████████████████████████ $1,003 Year 3 ███████████████████ $631 Year 4 ███████ $229
What an extra payment does
Paying more than you must goes straight against the loan, so less interest is charged the next month. On the loan above, adding $100 a month raises the payment to $583.58. The loan is paid off in 39 months instead of 48, which is 9 months sooner, and you pay $2,577.88 in interest instead of $3,211.75, a saving of $633.87.
Good to know
- A longer term lowers the monthly payment but raises the total interest. A shorter term does the opposite.
- The calculator assumes a fixed rate and equal monthly payments. Loans with a variable rate, or with interest-only periods, will differ.
- Fees, insurance and early-repayment charges are not included. Ask your lender if they apply.
- Some lenders round the payment up to the nearest cent, and the last payment may differ slightly from the schedule shown here.
This tool gives an estimate for general information only. It is not financial advice. Your lender's figures are the ones that count.