How loan repayments are calculated
M = (P − B ÷ (1 + r)^n) × r ÷ (1 − (1 + r)^−n)
- P is the amount borrowed, B is the final balloon and n is the number of repayments.
- r is the annual rate divided by 12, 26 or 52 payments per year.
- At 0% interest, divide the amount less the balloon by the number of payments.
- Each payment covers interest first, then principal. Extras reduce the balance sooner.
- Borrowing power reverses the same formula. Loan term uses the repayment to find the number of payments.
- Effective annual cost discounts actual repayments and fees to the amount received after the upfront fee. It is not a regulated APR or comparison rate.
Worked example: A 20,000 loan at 6% over five years costs 386.66 per month. The last payment adjusts for cent rounding. A 30% balloon on 30,000 is a final lump sum of 9,000.
Popular loan scenarios
| Loan amount | Annual interest rate | Term in years | Repayment frequency | Balloon / residual amount | Monthly repayment | Total interest |
|---|---|---|---|---|---|---|
| 20,000 | 6% | 5 | Monthly | 0 | 386.66 | 3,199.35 |
| 10,000 | 5% | 3 | Monthly | 0 | 299.71 | 789.54 |
| 20,000 | 6% | 5 | Fortnightly | 0 | 178.25 | 3,172.66 |
| 35,000 | 8% | 7 | Monthly | 0 | 545.52 | 10,823.45 |
| 30,000 | 7% | 5 | Monthly | 9,000 | 468.33 | 7,099.43 |
Swipe the table sideways to see the rest.
Things to consider
- Compare total interest and fees, not just the repayment.
- Try extra repayments to compare interest and time saved.
- Keep money aside for a final balloon.
- Use the same currency for the loan, fees and repayments.
Frequently asked questions
How are loan repayments calculated?
The amortisation formula divides the loan and interest into regular payments. Each payment pays interest on the remaining balance, then reduces principal. A balloon leaves part of the principal for the final payment.
Weekly, fortnightly or monthly repayments?
This calculator uses 52, 26 or 12 payments per year and recalculates the repayment. Fortnightly is not simply half the monthly amount; that would be an accelerated plan.
How do extra repayments save interest?
Extras reduce principal earlier, so later interest charges are smaller. The required repayment stays the same. Check whether early repayment charges apply.
Is the effective cost a comparison rate or APR?
It is an annualised estimate from the net loan advance and scheduled cash payments, including entered fees. Regulated APR and comparison-rate definitions vary. This estimate does not claim to meet any country's disclosure rules.
What is a balloon payment?
A balloon is principal left for a final lump sum. It reduces regular repayments but usually increases total interest. Enter an amount, not a percentage. Extras can reduce the balloon actually due. Loan-term mode assumes no balloon.
Fixed or variable interest?
These results assume a constant rate. A variable rate can change repayments or payoff time. Try several rates to compare possible costs.
Does this work for every loan?
It models ordinary amortising personal, car, student and business loans. It does not model income-based payments, deferred interest, subsidies or special product rules. For property-specific inputs, use the Mortgage Calculator.
Results are estimates for general information only, not financial, medical or professional advice.