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

This calculator works out how much interest you will pay on a loan over its full term, so you can see the true cost of borrowing before you sign up. You enter three things: the loan amount, the annual interest rate, and the term in years. It assumes a standard amortising loan, where you make a fixed monthly repayment that covers that month's interest plus a slice of the principal, with the interest share falling and the principal share rising as the balance is paid down. From those inputs it returns your monthly repayment, the total interest you will pay over the life of the loan, and the total amount you will repay altogether, principal plus interest. This makes it easy to see how a longer term lowers your monthly payment but increases the total interest, or how a lower rate or shorter term saves you thousands over the life of the loan. Try changing the term or rate to compare the effect on the total cost, and use it before committing to a personal loan, car loan, or other fixed-term borrowing. The figures cover interest on the rate you enter only; they do not include establishment fees, account fees, insurance, or other charges many lenders add on top, so always check the total cost of a loan, not just the advertised rate. Treat the results as indicative estimates only.

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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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