Personal Loan Repayment Calculator

The loan term, or the number of months over which you repay your loan, has a significant impact on both your monthly payment and the total cost of the loan. A longer term reduces the monthly payment, making it more manageable in the short term, but increases the total interest paid over the life of the loan. Conversely, a shorter term results in higher monthly payments but minimises the total interest cost. For example, a $10,000 loan at 6% interest over 36 months will cost less in total interest than the same loan repaid over 60 months. It's important to balance affordability with minimising long-term costs when choosing a loan term.

Making additional monthly payments reduces the loan's principal balance faster, which in turn lowers the amount of interest accrued over time. This can significantly shorten the loan's payoff period and reduce the total cost of the loan. For instance, adding an extra $50 to your monthly payment on a $10,000 loan with a 6% interest rate and a 36-month term can save hundreds of dollars in interest and cut several months off the repayment schedule. This strategy is especially effective for borrowers who want to minimise their long-term debt burden.

Origination fees are one-time charges imposed by lenders for processing the loan. These fees are typically expressed as a percentage of the loan amount and can range from 1% to 8%. If the fee is financed into the loan, it increases the total loan amount and, consequently, the interest paid over time. For example, a $10,000 loan with a 3% origination fee adds $300 to the principal, making the effective loan amount $10,300. This increases both the monthly payment and the total cost. Borrowers should account for origination fees when comparing loan options to ensure they understand the true cost of borrowing.

A competitive interest rate for a personal loan depends on factors such as your credit score, loan amount, and term. As of 2023, interest rates for personal loans typically range from 6% to 36%, with rates below 10% considered excellent for borrowers with strong credit (usually 720+). Borrowers with fair credit (around 640-699) may receive rates in the 15-20% range, while those with poor credit may face rates above 25%. It's crucial to shop around and compare offers from multiple lenders, including banks, credit unions, and online lenders, to secure the best rate for your financial situation.

An amortisation schedule is a detailed breakdown of each loan payment, showing how much goes toward interest and how much reduces the principal balance. It also tracks the remaining balance after each payment. This schedule is essential for understanding the progression of your loan repayment, as it reveals that interest payments are higher at the beginning of the loan and decrease over time as the principal is paid down. Reviewing the schedule can help you plan additional payments strategically to maximise interest savings and pay off the loan faster.

Most personal loans use simple interest rather than compound interest, meaning interest is calculated only on the outstanding principal balance. However, understanding how interest accrues is still critical. Interest is typically calculated monthly based on the annual interest rate divided by 12. For example, on a $10,000 loan with a 6% annual interest rate, the monthly interest for the first payment is $50. As you pay down the principal, the interest portion of each payment decreases. This is why additional payments toward the principal can significantly reduce the total interest paid over the loan's term.

One common misconception is that the monthly payment shown in a calculator includes all possible costs, such as origination fees. In reality, some calculators only account for principal and interest, so borrowers need to manually add fees to understand the full cost. Another misconception is that the calculator's results are final; in practice, they are estimates based on the inputs provided. Changes in interest rates, additional payments, or lender-specific policies can alter the actual repayment schedule. It's important to use calculators as a planning tool and cross-check with lender-provided disclosures.

To optimise your repayment strategy, start by making additional payments whenever possible, as this directly reduces the principal and lowers total interest costs. Avoid extending the loan term unnecessarily, as this increases the total interest paid. If your loan has an origination fee, consider paying it upfront rather than financing it. Additionally, monitor your credit score and refinance if you qualify for a lower interest rate in the future. Finally, use an amortisation schedule to track your progress and adjust your strategy as needed to stay on track with your financial goals.