Loan Calculator: Monthly Payments and Amortisation Analysis

The Borrowing Decision in 2026

Interest rates have stabilised following the aggressive tightening cycle of 2022-2024, yet borrowing costs remain elevated compared to the near-zero environment of 2020-2021. Understanding loan mathematics is essential before committing to significant debt.

Current average loan rates reflect this environment:

| Loan Type | USA (Feb 2026) | Credit Score Impact | |-----------|---------------|-------------------| | New Car (60-month) | 7.01% | 4.88% (excellent) to 14%+ (poor) | | Used Car | 11.87% | 6.82% (excellent) to 21.58% (poor) | | Personal Loan | 12.16% | 6.49% (excellent) to 35.99% (poor) |

Sources: Bankrate, Experian, NerdWallet

The difference between excellent and poor credit can exceed 15 percentage points on personal loans, translating to thousands of pounds or dollars in additional interest costs.

Calculator Guide
How Amortisation Works
Current Rate Scenarios: Real Calculations
Car Finance: New Versus Used Analysis
Buy Now Pay Later and AI Lending
International Rate Comparison
Strategic Considerations
How This Calculator Works
Sources

Calculator Guide

The Loan Amount field accepts the principal sum to be borrowed. This represents the actual amount received, before any origination fees.

The Interest Rate is entered as an Annual Percentage Rate (APR). Current rates vary substantially by loan type, credit score and lender. Obtaining quotes from multiple sources before finalising is advisable.

The Loan Term may be specified in months or years, with the appropriate unit selected from the dropdown. Longer terms reduce monthly payments but increase total interest paid.

Payment Frequency options include Monthly (standard), Bi-weekly (26 payments annually), Weekly, Quarterly, or Annual. Bi-weekly payments effectively add one extra monthly payment per year, accelerating payoff.

Results displayed upon calculation include:

Payment amount per period
Total of all payments over the loan term
Total interest paid
Payment schedule showing principal and interest allocation for each payment
Remaining balance trajectory

For extra payment analysis, an additional monthly payment amount may be entered to observe the impact on payoff time and interest savings.

How Amortisation Works

Amortisation is the process by which a loan is repaid through regular payments over time. Each payment comprises two components: interest on the current outstanding balance and principal reduction.

The amortisation formula calculates the fixed payment required:

PMT = [P × r × (1 + r)^n] / [(1 + r)^n - 1]

Where:

P = Principal (loan amount)
r = Periodic interest rate (annual rate ÷ payment periods per year)
n = Total number of payments

The Front-Loaded Interest Structure

Early payments are dominated by interest. Consider a £20,000 loan at 7% APR for 5 years:

| Payment | Interest Portion | Principal Portion | Remaining Balance | |---------|-----------------|-------------------|-------------------| | 1 | £116.67 | £279.32 | £19,720.68 | | 12 | £105.83 | £290.16 | £16,614.46 | | 30 | £69.07 | £326.92 | £11,572.30 | | 60 | £2.30 | £393.69 | £0.00 |

In the first payment, 29.5% goes to interest. In the final payment, less than 0.6% goes to interest. This structure means that extra payments made early in the loan term save substantially more interest than extra payments made later.

Current Rate Scenarios: Real Calculations

Scenario 1: New Car Purchase (USA, 2026)

The average new car loan rate stands at 7.01% for a 60-month term. With the average new car transaction price at approximately $48,000:

Standard Financing:

Loan Amount: $48,000
Rate: 7.01% APR
Term: 60 months
Monthly Payment: $950.39
Total Interest: $9,023.40
Total Repayment: $57,023.40

Impact of Credit Score:

For the same loan with excellent credit (4.88% APR):

Monthly Payment: $902.84
Total Interest: $6,170.40
Savings: $2,853.00

For the same loan with poor credit (14% APR):

Monthly Payment: $1,116.58
Total Interest: $18,994.80
Additional Cost: $9,971.40

The credit score difference of approximately 9 percentage points translates to nearly $10,000 in additional interest.

Scenario 2: Personal Loan Debt Consolidation (UK)

A borrower with £15,000 in credit card debt at 22% APR considers consolidating to a personal loan at 8.5% APR:

Existing Credit Card Debt (minimum payments):

Balance: £15,000
Rate: 22% APR
Minimum Payment: 2.5% of balance (minimum £25)
Time to Repay: Approximately 25 years
Total Interest: ~£18,000

Personal Loan Consolidation:

Loan Amount: £15,000
Rate: 8.5% APR
Term: 48 months
Monthly Payment: £369.21
Total Interest: £2,722.08
Savings: ~£15,278

The consolidation saves over £15,000 in interest, though it requires commitment to £369 monthly payments rather than declining minimums.

Scenario 3: Used Car Purchase with Trade-In

The average used car loan rate is 11.87%. A buyer financing £12,000 after trade-in:

60-Month Financing:

Monthly Payment: £267.41
Total Interest: £4,044.60

36-Month Financing:

Monthly Payment: £395.71
Total Interest: £2,245.56
Interest Saved: £1,799.04

The shorter term increases monthly payments by £128.30 but saves £1,799 in interest.

Car Finance: New Versus Used Analysis

The decision between new and used car financing involves multiple factors beyond monthly payments.

Depreciation Consideration

New cars depreciate approximately 20-30% in the first year. A £35,000 new car may be worth £25,000 after 12 months. During this period, if financed at 7% over 60 months:

12 months of payments: £8,316
Principal paid: £6,062
Remaining balance: £28,938
Car value: ~£25,000
Negative equity: £3,938

This "underwater" position means the loan exceeds the asset value. Gap insurance addresses this risk but adds cost.

Used Car Value Proposition

A 3-year-old version of the same car might cost £22,000. At 11.87% over 48 months:

Monthly Payment: £578.02
Total Interest: £5,744.96
Total Cost: £27,744.96

Compared to new car total cost (purchase + financing): £35,000 + £6,884 = £41,884

Savings with used: £14,139

However, warranty coverage, maintenance costs and reliability must factor into this comparison.

0% Finance Versus Cash Discount

Dealers often offer a choice: 0% APR financing or a cash discount. Consider a £25,000 car with 0% for 48 months versus £2,000 cash discount with 6% APR:

Option A: 0% APR

Monthly Payment: £520.83
Total Cost: £25,000

Option B: £2,000 Discount + 6% Financing

Loan Amount: £23,000
Monthly Payment: £540.19
Total Interest: £2,929.12
Total Cost: £25,929.12

In this scenario, 0% financing saves £929.12. However, if the cash discount were £3,500, the calculation reverses:

Total Cost: £23,429.12
Savings: £1,570.88

Always calculate both options rather than assuming 0% is superior.

Buy Now Pay Later and AI Lending

BNPL Interest Calculations

Buy Now Pay Later services (Klarna, Afterpay, Clearpay) typically offer interest-free instalments if paid on time. However, missed payments trigger fees and interest:

Typical BNPL Structure:

Purchase: £200
4 instalments of £50 over 6 weeks
On-time repayment: £0 interest
Missed payment fee: £6-£12 per occurrence
Late payment interest: 15-25% APR on outstanding balance

Scenario: Missing Two Payments

Original cost: £200
Late fees: £18
Interest on £100 remaining: ~£4
Total cost: £222
Effective APR: ~79% (annualised)

The convenience of BNPL can become expensive if payments are missed.

AI-Powered Lending Platforms

Fintech lenders increasingly employ AI for credit decisions, potentially offering rates to borrowers whom traditional banks decline. However, understanding the terms remains essential:

Typical AI Lender Rates (2026):

Prime borrowers: 6-10% APR
Near-prime: 15-25% APR
Subprime: 25-36% APR

These platforms may approve loans more quickly but often charge premium rates for the convenience and accessibility.

Cryptocurrency-Backed Loans

DeFi platforms offer loans backed by cryptocurrency collateral, typically requiring 150-200% collateralisation:

Example: Borrowing Against ETH

Collateral: £10,000 in ETH
Borrowing Power: £5,000-£6,667 (50-66% LTV)
Interest Rate: 2-8% APR (variable)
Risk: Liquidation if ETH price drops significantly

These loans avoid credit checks but introduce cryptocurrency price risk. A 30% ETH price decline could trigger automatic liquidation, losing the collateral.

International Rate Comparison

Loan costs vary substantially across economies, reflecting central bank policies, banking competition and credit market structures.

Auto Loan Comparison (February 2026)

| Country | Average Rate | 5-Year Cost on £20,000 | |---------|-------------|----------------------| | United States | 7.01% | £3,758 interest | | United Kingdom | 8.5% | £4,610 interest | | Australia | 7.9% | £4,268 interest | | Germany | 5.5% | £2,920 interest | | Japan | 2.5% | £1,290 interest |

Source: Central bank data, Trading Economics

Japan's low-rate environment produces significantly cheaper borrowing costs. The same £20,000 loan costs £2,468 less in Japan than in the UK.

Personal Loan Rate Landscape

| Country | Average Personal Loan Rate | Typical Range | |---------|---------------------------|---------------| | United States | 12.16% | 6.49% - 35.99% | | United Kingdom | 9.5% | 5.9% - 24.9% | | Nigeria | 25-35% | Bank-dependent | | Australia | 11.5% | 6.5% - 21% |

Source: Bankrate, local banking sources

Federal Reserve Impact on Borrowing

The Federal Reserve's current target rate of 3.50-3.75% influences all US consumer lending rates. Each Fed rate cut typically reduces consumer loan rates by a similar margin, though lenders do not always pass through the full reduction immediately.

Market expectations of two additional rate cuts in 2026 suggest potential modest rate reductions. However, waiting for lower rates must be weighed against immediate borrowing needs and the cost of delay.

Strategic Considerations

Extra Payments: Early Versus Late

Extra payments made early in a loan term save substantially more interest due to the front-loaded interest structure.

On a £20,000 loan at 7% for 60 months:

| Extra Payment Strategy | Interest Saved | Months Shortened | |-----------------------|----------------|-----------------| | £100 extra in months 1-12 | £412 | 8 months | | £100 extra in months 25-36 | £198 | 5 months | | £100 extra in months 49-60 | £47 | 2 months |

The same £1,200 in extra payments saves 8.8× more interest when paid early versus late.

Refinancing Decision Framework

Refinancing makes sense when:

Rate reduction exceeds 0.5-1.0 percentage points
Remaining term is sufficient to recoup refinancing costs
Credit score has improved since original loan
No prepayment penalties apply to existing loan

Example Refinance Analysis:

Original: £15,000 at 12% APR, 36 months remaining
Refinance: £15,000 at 8% APR, 36 months
Monthly savings: £29.40
Total savings: £1,058.40
Breakeven if fees < £1,058

Debt Avalanche Versus Snowball

With multiple loans, two primary strategies exist:

Avalanche Method (mathematically optimal): Pay minimums on all debts, direct extra funds to highest-rate debt first. Minimises total interest paid.

Snowball Method (psychologically effective): Pay minimums on all debts, direct extra funds to smallest balance first. Provides quicker "wins" that maintain motivation.

For significant rate differences, avalanche is substantially more effective. For similar rates, snowball's motivational benefits may justify the modest additional interest cost.

How This Calculator Works

Payment Calculation:

paymentsPerYear = {weekly: 52, bi-weekly: 26, monthly: 12, quarterly: 4, annually: 1}
totalPayments = (termMonths / 12) × paymentsPerYear
periodRate = annualRate / paymentsPerYear

payment = principal × [periodRate × (1 + periodRate)^totalPayments] / [(1 + periodRate)^totalPayments - 1]

Total Interest:

totalPayment = payment × totalPayments
totalInterest = totalPayment - principal

Amortisation Schedule (for each payment):

interestPayment = remainingBalance × periodRate
principalPayment = payment - interestPayment
remainingBalance = remainingBalance - principalPayment

Extra Payment Analysis:

The same calculation is performed with (payment + extraPayment) as the payment amount. Total payments and payoff time are compared to the standard schedule.

All calculations are performed locally in the browser.

Sources

FAQs

How accurate is this calculator?

The calculator employs the exact amortisation formula utilised by lenders. Actual payments may vary marginally due to rounding conventions or lender-specific calculation methods.

Why do early payments contain more interest?

Interest is calculated on the remaining balance. Early in the loan, the balance is highest, thus interest charges are highest. As principal is reduced, interest charges decrease proportionally.

How does payment frequency affect total cost?

Bi-weekly payments (26 annually) result in one additional monthly payment equivalent per year compared to monthly payments (12 annually). This accelerates payoff and reduces total interest. On a £20,000 loan at 7% for 5 years, bi-weekly payments save approximately £320 in interest.

Should I make extra payments?

If the loan has no prepayment penalty and adequate emergency savings exist, extra payments reduce total interest—particularly early in the loan term. However, if the loan rate is lower than expected investment returns, investing the extra funds may be more beneficial.

What distinguishes APR from interest rate?

APR (Annual Percentage Rate) includes fees and other costs, providing a more complete cost comparison. The interest rate is the borrowing cost alone. For loans with origination fees, APR exceeds the stated interest rate.

How do secured and unsecured loans differ?

Secured loans (auto, mortgage) use collateral, enabling lower rates because the lender can recover the asset if payment defaults occur. Unsecured loans (personal, credit card) have no collateral, commanding higher rates to compensate for increased lender risk.

What is negative amortisation?

When minimum payments fail to cover interest due, unpaid interest adds to principal. The balance grows rather than shrinking. Such loan structures should be avoided as they typically represent predatory lending practices.

When should refinancing be considered?

Refinancing merits consideration when: a significantly lower rate is available (typically 0.5-1% or more), sufficient time remains to recoup closing costs, and credit circumstances have improved since the original loan was obtained.

How do AI lenders differ from traditional banks?

AI-powered lending platforms employ machine learning for credit decisions, potentially approving borrowers whom traditional banks decline. They often provide faster approvals but may charge premium rates. Loan terms should be evaluated with the same scrutiny applied to traditional lenders.

What risks exist with cryptocurrency-backed loans?

Crypto-backed loans avoid credit checks but introduce price volatility risk. If collateral value drops below required levels (typically 150-200% of loan value), automatic liquidation occurs. Borrowers may lose their cryptocurrency collateral entirely during significant market downturns.

How do I compare loan offers effectively?

Compare APR (which includes fees), monthly payment, total interest and loan term. Calculate total repayment for each option. The lowest APR is not always optimal if terms differ significantly. A lower rate over a longer term may cost more in total interest than a higher rate over a shorter term.

Loan Calculator — Loan Payment & Amortization Calculator