The formula behind the number
A fixed-rate loan uses the standard amortisation formula, the same one behind a spreadsheet's PMT function:
M = P × [ r(1+r)n ] / [ (1+r)n − 1 ]
P is the amount borrowed, r is the monthly rate (the annual rate divided by twelve) and n is the total number of monthly payments. The formula finds the one fixed payment that brings the balance to exactly zero after n months.
Why early payments barely touch the balance
Each month, interest is charged on whatever you still owe. Early on, the balance is nearly the full amount, so most of the payment covers interest and only a sliver reduces the debt. As the balance falls, the interest portion shrinks and the principal portion grows. This is why the schedule looks lopsided at first and accelerates near the end.
It also explains why an extra payment early is worth far more than the same payment later: it removes principal that would otherwise have accrued interest for years.
What this calculator does not include
- Fees. Arrangement fees, origination fees and broker charges are not part of the payment formula but are part of what the loan costs you.
- Insurance. Payment protection or life cover attached to the loan is billed separately.
- Variable rates. The maths here assumes the rate never changes. On a variable or tracker loan the payment will move.
- Early repayment penalties. Some lenders charge for paying off early, which can offset the saving shown above.
This is why the rate a lender advertises and the APR they quote often differ: APR folds compulsory fees into a single comparable figure.
Using the extra payment field
Adding even a small amount each month shortens the term and cuts total interest, because every extra unit comes straight off the principal. The calculator shows the revised payoff time and the interest saved. Before committing, check whether your agreement permits overpayment without penalty, and confirm the lender applies extra money to the principal rather than holding it against next month's instalment.
Frequently asked questions
How is a monthly loan payment calculated?
With the amortisation formula M = P x [r(1+r)^n] / [(1+r)^n - 1], where P is the amount borrowed, r is the annual rate divided by twelve, and n is the number of monthly payments.
Why is so much of my early payment interest?
Interest is charged on the outstanding balance, which is at its highest at the start. As the balance falls, less of each payment goes to interest and more reduces the debt.
Does this calculator include fees and insurance?
No. It calculates principal and interest only. Arrangement fees, broker charges and payment protection are billed separately and are the main reason a lender's APR differs from the headline rate.
How much does an extra monthly payment save?
It depends on the rate and how early you start, since every extra unit comes off the principal and stops accruing interest. Enter an amount in the extra payment field to see the revised payoff date and interest saved.
Is my data sent anywhere?
No. The calculation runs entirely in your browser and no figures are transmitted or stored.