How is loan interest calculated?

Most personal loans are amortising, so interest is charged each month on the balance still owing. Early on, most of your payment is interest and little reduces the balance. As the balance falls, more of each payment goes to the principal, so the interest paid each month drops over time.

How can I pay less interest?

A shorter term raises the monthly payment but cuts the total interest sharply, because the balance is cleared faster. Paying extra when you can, or choosing a lower rate, also reduces the total interest. Try different terms in the calculator to see the effect.

Does this include fees?

No. This shows the interest from the rate only. Real loans may also charge an establishment fee, monthly account fees, or insurance, which add to the cost. Always compare the annual interest rate and the total cost across the full term.

Loan Interest Calculator

See how much interest a loan will really cost. Enter the loan amount, the annual interest rate, and the term, and the calculator shows the monthly repayment, the total interest paid over the life of the loan, and the total amount repaid. It is the quickest way to see how the term and rate change the true cost of borrowing.

Loan amount

Interest rate (per year)

Term (years)

total interest

Monthly repayment$0

Total repaid$0

How loan interest works

A standard loan is amortising, which means each fixed payment covers the interest for that month plus a slice of the principal. At the start the balance is high, so most of the payment is interest. As you pay the balance down, the interest each month shrinks and more of your payment clears the debt.

Worked example

A $20,000 loan at 12.95% over 5 years has a monthly repayment of about $455. Over the full term you repay roughly $27,300, so the interest is about $7,300. Cutting the term to 3 years lifts the payment but drops the interest to around $4,200.

Related calculators

Loan Calculator: repayments and totals on any loan.
Loan Comparison Calculator: compare two loans side by side.
Loan Amortisation Schedule: full payment-by-payment breakdown.
Personal Loan Repayment Calculator: personal loan repayments.

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