Question 1

How is a monthly loan payment calculated?

Accepted Answer

The standard formula for a fixed-rate monthly payment is: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P = principal (loan amount), r = monthly interest rate (annual rate ÷ 12), n = number of monthly payments (term in years × 12). Example: £200,000 mortgage at 4.5% annual rate for 25 years. r = 0.045/12 = 0.00375; n = 25×12 = 300. M = 200,000 × [0.00375 × (1.00375)^300] / [(1.00375)^300 − 1] = approximately £1,111/month. Total paid = £333,300; total interest = £133,300.

Question 2

What is an amortisation schedule?

Accepted Answer

An amortisation schedule is a complete table showing every payment over the life of a loan. Each row shows: the payment number, payment date, payment amount (the same every month for a fixed-rate loan), how much of the payment goes to interest, how much reduces the principal, and the remaining balance after that payment. In the early years of a loan, most of each payment is interest; over time, more goes to principal. This is why paying extra early in a loan saves disproportionately more interest than paying extra at the end. The calculator generates the full schedule for download.

Question 3

What is the difference between APR and interest rate?

Accepted Answer

The interest rate is the base cost of borrowing, expressed as an annual percentage of the principal. APR (Annual Percentage Rate) includes the interest rate plus additional fees — arrangement fees, broker fees, valuation fees — spread across the loan term. APR is always equal to or higher than the interest rate and gives a more complete picture of the true cost of borrowing. In the UK, lenders must show the APR by law. When comparing loans, use the APR — a loan with a lower rate but high fees may cost more than a loan with a slightly higher rate and no fees.

Question 4

How much does making extra payments save?

Accepted Answer

Extra payments reduce your principal faster, which means less interest accrues. Example: £200,000 mortgage at 4.5% for 25 years, monthly payment £1,111. If you pay an extra £100/month: you pay off the loan ~3 years and 2 months early and save approximately £16,000 in interest. If you pay an extra £200/month: you pay off ~5 years early and save ~£27,000. Extra payments have the greatest impact early in the loan when the outstanding balance (and therefore interest) is highest. Always check if your loan has early repayment charges before making overpayments.

Loan term	Monthly payment	Total interest	Total cost
10 years	£2,073	£48,760	£248,760
15 years	£1,529	£75,220	£275,220
20 years	£1,265	£103,600	£303,600
25 years	£1,111	£133,300	£333,300
30 years	£1,013	£164,800	£364,800

Loan & Mortgage Calculator

Example loan comparison — £200,000 at 4.5%

Frequently asked questions

Related tools

Know the true cost of any loan before you sign