How UK lenders turn an APR into repayments
In the UK, an APR is an annual effective rate: the monthly rate that, compounded over 12 months, adds up to the APR (FCA CONC Appendix 1, which treats a month as a twelfth of a year). The monthly rate is (1 + APR)^(1/12) − 1, so 7% APR is about 0.565% a month rather than 7 ÷ 12 = 0.583%.
The calculator then sets equal monthly repayments that cover each month's interest and repay the amount borrowed by the end of the term. Calculators that simply divide the APR by 12 overstate the repayment slightly, and the gap grows with the rate.
Worked example
Borrowing £5,000 over 3 years at 9.9% APR gives a monthly repayment of £160.11. The total amount repayable is £5,764.02, so the loan costs £764.02 in interest. These match the figures Moneyfacts publishes for the same loan.
Dividing the APR by 12 instead would give £161.10 a month, 99p more.
Repaying a UK loan early
You have the right to repay a regulated consumer loan early, in full or in part (Consumer Credit Act 1974, section 94). Choose Yes under 'Estimate repaying early?' and enter how many repayments you'll have made. The calculator shows the balance left at that point, the largest early repayment charge the law allows, the estimated amount to settle and the interest you would save.
Under section 95A, a lender can claim a charge only on a fixed-rate loan, and only if the early repayment is more than £8,000 (or more than £8,000 in total in any 12 months). The charge can't be more than 1% of the amount repaid if more than a year of the loan is left, or 0.5% if a year or less is left, and never more than the interest you would have paid. It is a maximum: your agreement may set a lower charge or none.
For example, borrowing £20,000 at 7% APR over 5 years costs £394.00 a month. If you repay in full after 12 repayments, the balance left is £16,522.19. More than a year remains, so the most the lender can charge is 1%, £165.22, making an estimated £16,687.41 to settle. You'd save £2,224.50 compared with making the remaining 48 repayments.
Your lender's actual settlement figure is calculated under the Consumer Credit (Early Settlement) Regulations 2004. It is worked out for a date 28 days after the lender receives your notice, and on longer loans the lender may defer that date by a further month or 30 days. Some lenders describe this as up to 58 days' interest. This estimate settles on a repayment date and doesn't add that extra interest, so ask your lender for a settlement figure before you pay.
Comparing UK loan quotes
When comparing loans, look at the APR, which includes the interest rate and most compulsory fees, and at the total amount repayable. A lower monthly repayment over a longer term can cost more overall.
Advertised 'representative' APRs only have to be offered to at least 51% of successful applicants, so the rate you're offered may be higher. Use the APR from your own quote for an accurate figure.
After signing a loan agreement you can usually withdraw within 14 days without giving a reason, as long as you repay the money and the interest for the days you had it (Consumer Credit Act 1974, section 66A).
What this calculator assumes
The rate is fixed for the whole term and you make equal monthly repayments. Some UK lenders also show an 'interest rate p.a.' that is the APR's nominal equivalent, a little lower even with no fees (6.4% APR is about 6.22% p.a.). Enter the APR rather than this rate.
The APR also includes compulsory fees. If your loan charges an arrangement fee, your repayments are based on a lower rate than the APR, so this calculator will overstate them slightly; your agreement shows the exact figure.
Some lenders charge interest daily rather than monthly, and most round each repayment to the penny, so your agreement's figures can differ by a few pence. The calculator doesn't check whether a lender would approve the loan.
Borrowing in the US?
The country choices above the inputs open separate local pages. US lenders quote the APR as a nominal rate and divide the interest rate by 12, so the same numbers give a slightly different payment there. Choosing United States opens the US page and resets the inputs; amounts are not converted.
For a loan from a US lender, use the US loan payment calculator with its USD amounts, origination fee and Truth in Lending terms.
Inputs for the UK loan calculator
Amount to borrow
The amount you want to borrow, in pounds.
APR
The annual percentage rate from your quote. The rate shown is only an example. The calculator converts it to a monthly rate the way UK lenders do: (1 + APR)^(1/12) − 1.
Term
How many years you'll repay the loan over. Part-years are fine if they come to whole months, such as 2.5 years.
First payment date
When your first monthly repayment is due. The calculator puts the rest on the same day each month, moving to the last day of shorter months, to find your final repayment date.
Estimate repaying early?
Choose Yes to estimate the balance and the maximum early repayment charge if you repay the whole loan early.
Repay in full after
How many monthly repayments you'll have made when you settle the loan. It must be fewer than the total number of repayments.
CALCULATOR QUESTIONS
UK loan calculator questions
How are monthly loan repayments worked out in the UK?
The APR is turned into a monthly rate, (1 + APR)^(1/12) − 1, and the repayment is set so that equal monthly payments cover the interest and repay the loan by the end of the term. This matches how UK lenders calculate their representative examples.
Why is my repayment lower than a calculator that divides the APR by 12?
A UK APR already includes the effect of monthly compounding, so the true monthly rate is a little below APR ÷ 12. Dividing by 12 overstates the repayment: £5,000 over 3 years at 9.9% APR is £160.11 a month, not £161.10.
Does a longer loan cost more?
Usually, yes. Spreading a loan over more years lowers each repayment, but you pay interest for longer, so the total cost rises.
Can I pay my loan off early?
Yes. For a regulated consumer loan you have the right to repay early, in full or in part. On a fixed-rate loan the lender can charge up to 1% of the amount repaid (0.5% if a year or less is left), but only on early repayments over £8,000 in any 12 months. Check your loan agreement.
What's the difference between the interest rate and the APR?
The APR is an annual effective rate that includes compulsory fees, which makes it the better figure for comparing loans. Some lenders also quote an interest rate p.a. as a nominal yearly rate, which is a little lower than the APR even with no fees. Enter the APR here.