How to Calculate Loan Repayments in the UK

Loans are a common way to finance cars, home improvements, or personal needs. Before borrowing, it helps to understand how lenders calculate monthly repayments so you can plan your budget and compare offers fairly.

What makes up a repayment?

• Principal: the amount you borrow.
• APR (Annual Percentage Rate): the yearly interest charged.
• Term: the length of the loan in months or years.

The monthly repayment combines part of the principal plus the interest due for that month.

A worked example

Suppose you borrow £10,000 at an APR of 6% over 3 years (36 months).

Monthly payment = [P × r × (1 + r)^n] ÷ [(1 + r)^n – 1]

Where:
P = £10,000
r = 0.06 ÷ 12 = 0.005 (monthly interest rate)
n = 36 (months)
        

The result is about £304.22 per month. Over 36 months you repay £10,951.92, which includes £951.92 interest.

Why this matters

• It shows the true cost of a loan, not just the monthly figure.
• It helps you decide whether a shorter or longer term is more affordable overall.
• It allows you to compare lenders fairly using the same method.

Try it yourself

Instead of manual calculations, use NumGenie’s free Loan Calculator. Enter your amount, APR, and term to see instant results, plus test “what if” scenarios (like paying over 2 years instead of 3).

Disclaimer: This guide is for general information only and not financial advice.