How compound interest works on a loan
Compounding means interest is added to the balance, and the next interest is charged on that bigger balance. The rate you enter is a yearly rate divided across the compounding periods: 7% compounded monthly is 7% ÷ 12 each month.
Each month the calculator adds the interest, then takes off your repayment. The effective annual rate shows what the compounding adds up to over a year: ((1 + rate ÷ periods)^periods − 1).
Worked example
£10,000 at 7% compounded monthly, with nothing repaid, grows to £14,176.25 in 5 years: £4,176.25 of interest. The effective annual rate is 7.23%.
Compounded daily, it reaches £14,190.20. Compounded once a year, £14,025.52.
Which loans compound?
Interest rolls up on loans where you make no payments, such as lifetime mortgages, some bridging loans and unpaid card balances. On a normal repayment loan you pay each month's interest, so it doesn't build up. A UK APR is already an effective annual rate, so enter a nominal rate here, not an APR, to avoid counting compounding twice.
What this calculator assumes
A fixed rate, interest added at the end of each month before the repayment, and no fees or charges for missed payments.
Borrowing in the US?
The country choices above the inputs open separate local pages. US statements quote an APR that is nominal, not an effective rate. Choosing United States opens that page and resets the inputs; amounts are not converted.
For a US loan, use the US loan compound interest calculator in US dollars.
Inputs for the UK compound interest loan calculator
Amount borrowed
What you owe at the start, in pounds.
Interest rate (per year)
The nominal yearly rate before compounding, not an APR.
Time period
How many years to work it out for.
Interest compounds
How often interest is added to the balance.
Monthly repayment
What you pay each month. Enter 0 to see the balance grow untouched.
CALCULATOR QUESTIONS
UK compound interest loan calculator questions
How is compound interest calculated on a loan?
Each period, interest is worked out on the balance including earlier interest. Over a year that gives the effective annual rate, ((1 + rate ÷ periods)^periods − 1).
Is daily compounding worse than monthly?
Slightly. 7% compounded daily is an effective annual rate of 7.25%, against 7.23% compounded monthly.
Do personal loans use compound interest?
Interest is charged monthly on the balance, but because each repayment covers that month's interest, it doesn't compound unless you miss payments.
What's the difference between the effective annual rate and APR?
Both are yearly rates that include compounding. The effective annual rate shows interest only; a UK APR also includes compulsory fees. AER is the savings version, for interest you earn.