Loan Repayment Calculator

How a loan repayment is worked out

When you take a fixed-rate loan, the lender spreads the cost evenly so you pay the same amount every month until the balance reaches zero. Early on, most of each payment is interest, because the balance is still large. As the balance shrinks, more of your money goes toward the loan itself, which is why the final payments have almost no interest left in them.

The monthly figure comes from the standard amortising formula: M = P r (1 + r)^n divided by ((1 + r)^n minus 1), where P is the amount borrowed, r is the monthly rate (the yearly rate divided by 12 and by 100), and n is the number of months. You never have to do this by hand. Type in your numbers and the result updates instantly.

Two quick examples

Borrow 10,000 at 12% a year over 24 months and you pay about 470.73 a month. In total you hand back roughly 11,298, of which about 1,298 is interest.

Keep that same loan but stretch it to 48 months and the monthly payment drops to around 263, which feels much easier on your budget. The catch is that you now pay close to 2,600 in interest, roughly double. A smaller monthly payment nearly always means more interest overall.

How can you pay less interest on a loan?

• Choose the shortest term you can comfortably afford. It is the single biggest lever on total interest.
• Shop the rate hard. On a large loan, even half a percent turns into real money over the years.
• Round your payment up, or add a little extra when you have it. Every extra amount comes straight off the balance and saves interest on everything that follows.

Adding loan insurance

Many lenders add insurance on top of the loan: credit life cover (which settles the debt if you die or are permanently disabled) and sometimes retrenchment cover (which pays your instalments if you lose your job). Enter the yearly rates your bank quotes and the calculator adds the cost to your monthly and total repayment. Leave both at zero if they do not apply to you.

Two ways banks charge the premium

Which one your bank uses makes a real difference to the cost, so the calculator lets you pick:

• On the reducing balance (the default and most common): the premium is charged each month on what you still owe. As you pay the loan down, the premium shrinks too, and the cover matches your outstanding balance.
• Single premium on the original amount: a one-off premium worked out on the full loan for the whole term (loan amount times the rate times the years). This is the more expensive method and is sometimes added to the loan upfront.

How to use it, with an example

Take a 10,000 loan at 12% over 24 months (2 years) with 1% a year credit life cover:

• Choose reducing balance and the insurance comes to about 108 in total, because the balance falls each month.
• Choose single premium and it is 10,000 times 1% times 2 = 200, because it is charged on the full amount for the whole term.

So enter the rate your bank gave you, then match the method to how they quote it. If you are not sure, ask whether the premium is on the outstanding balance or the original amount. When in doubt, reducing balance is the usual answer for modern loans.

What is the mistake to avoid?

Judging a loan by the monthly payment alone. Two loans can cost the same each month while one quietly charges far more, simply because it runs longer. Always compare the total you will repay, not just the amount that leaves your account. If you plan to overpay, our loan payoff calculator shows exactly how much time and interest that saves.