Personal Loan Interest Calculator

How a personal loan payment is calculated

Personal loans are amortising: you make an identical payment every month, and by the final one the balance is exactly zero. The payment comes from the same formula that governs mortgages and car loans:

Payment = P × [r(1 + r)ⁿ] ÷ [(1 + r)ⁿ − 1] — P is the amount borrowed, r the monthly rate, n the number of months.

Early payments go mostly to interest and later ones mostly to principal, though personal loan terms are short enough that the effect is less dramatic than on a 30-year mortgage.

A worked example

Borrow $15,000 at 11.5% APR over 48 months. The payment is about $391 a month, and you’d repay roughly $18,784 in total — around $3,784 in interest.

Stretch the same loan to 60 months and the payment falls to about $330, which looks like relief. But total interest rises to roughly $4,793 — an extra $1,009 for the lower monthly figure. Longer terms always cost more overall, even at an identical rate.

When a personal loan makes sense

The clearest case is debt consolidation. If you’re carrying credit card balances at 22-25% APR, replacing them with a fixed-rate personal loan at 11-12% cuts the interest cost and gives you a definite payoff date. Our guide to paying off credit card debt covers how this compares to paying the cards directly.

It’s a poor fit for discretionary spending. Financing a holiday or an upgrade means paying interest on something that produces no return — and unlike a mortgage, there’s no appreciating asset behind it.

Common mistakes people make with personal loans

• Comparing interest rate instead of APR. APR includes origination fees, which on personal loans commonly run 1-8% and are often deducted from the amount you receive.
• Choosing the longest term available. Lenders present the lowest monthly payment because it looks affordable. Pick the shortest term you can comfortably service.
• Consolidating without changing habits. Paying off cards with a loan and then running the cards back up leaves you with both debts.
• Not checking for prepayment penalties. Most reputable lenders don’t charge them, but confirm before signing if you plan to pay early.

What this calculator doesn’t account for

It assumes a fixed rate, no origination fee deducted upfront, no late fees, and no early repayment. If your lender deducts a 5% origination fee from a $15,000 loan, you receive $14,250 but repay interest on the full $15,000 — so your effective cost is higher than the stated rate. Always compare the APR figure on the loan disclosure, since that’s what regulations require to include those fees.