Calculate monthly repayment, total interest, and payoff cost for a loan or financing plan.
This tool provides estimates for informational purposes only. It is not a substitute for professional advice. Individual results vary based on your inputs and assumptions, so review important decisions with a qualified professional.
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A loan repayment (or amortisation) schedule breaks down each periodic payment into two components: interest on the outstanding balance, and principal repayment that reduces that balance. In the early stages of a loan, the majority of each payment goes toward interest. As the balance decreases over time, an increasing proportion of each payment reduces the principal. This is why paying off a loan early – even by a modest amount – saves disproportionately large amounts of interest over the loan's life.
The standard monthly payment formula for a fully amortising loan is:
M = P × [r(1+r)^n] / [(1+r)^n − 1]
Where M is the monthly payment, P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. For example, a £150,000 mortgage at 5% annual interest over 25 years: r = 0.05/12 = 0.004167, n = 300 months. Monthly payment = £876.89. Over the full 25 years, total paid = £263,067, meaning total interest = £113,067 – nearly 75% of the original loan amount.
Total interest paid over the life of a loan is simply: Total Interest = (Monthly Payment × Number of Payments) – Principal. This figure often surprises borrowers. A £200,000 mortgage at 4% over 30 years has monthly payments of approximately £955, and total interest paid of £143,739 – more than 70% of the original amount borrowed, paid purely for the use of that money over time. Increasing the payment by just £200 per month to £1,155 would pay off the same mortgage in approximately 20 years and save over £60,000 in interest.
Making overpayments on a mortgage or loan is one of the most powerful financial tools available. Every pound or dollar paid above the minimum reduces the outstanding principal directly, which in turn reduces future interest charges. The earlier overpayments are made, the greater the compounding benefit. A £500 lump sum overpayment in year 1 of a 25-year mortgage saves far more interest than the same £500 made in year 20, because it eliminates 19 more years of interest on that £500.
Most UK mortgage lenders allow overpayments of up to 10% of the outstanding balance per year without triggering Early Repayment Charges (ERCs). Some lenders allow unlimited overpayments on variable-rate products. Always check your mortgage terms before making large overpayments.
UK student loans operate very differently from bank loans and should not be compared directly to commercial borrowing. Repayments are income-contingent – you only repay when your income exceeds the threshold, and the debt is written off after a fixed period regardless of remaining balance.
| Plan | Repayment Threshold | Rate Above Threshold | Written Off After |
|---|---|---|---|
| Plan 1 (pre-2012 England/Wales; Scotland) | £24,990/yr (2024/25) | 9% | 25 years (or age 65) |
| Plan 2 (2012-2023 England/Wales) | £27,295/yr (2024/25) | 9% | 30 years |
| Plan 5 (from August 2023 England) | £25,000/yr (2024/25) | 9% | 40 years |
| Postgraduate Loan | £21,000/yr | 6% | 30 years |
The key insight for UK student loans: most graduates on Plan 2 or Plan 5 will never repay their full debt before the write-off date. For many, the effective cost is not the stated loan balance but a graduate tax of 9% on income above the threshold for up to 30-40 years. Higher earners will repay in full; lower to middle earners will have significant balances written off. Whether to make voluntary overpayments on a student loan is therefore a complex financial decision that depends heavily on expected lifetime earnings.
US federal student loans offer several repayment plan options, each with different monthly payment calculations and timelines:
Standard Repayment Plan: Fixed payments over 10 years. Results in the lowest total interest paid but the highest monthly payment. Monthly payment = loan amount × [r(1+r)^120] / [(1+r)^120 – 1].
Graduated Repayment Plan: Payments start low and increase every two years over 10 years. Better for borrowers expecting rising incomes.
Income-Driven Repayment (IDR) Plans: Include Income-Based Repayment (IBR), Pay As You Earn (PAYE), and the newer SAVE plan (previously REPAYE). Payments are capped at 5-10% of discretionary income. Remaining balances are forgiven after 20-25 years (taxable forgiveness), or 10 years for Public Service Loan Forgiveness (PSLF) for qualifying public sector employees.
Unlike UK student loans, US federal loans are true debts with compound interest that accrues continuously. The SAVE plan introduced in 2023 prevents unpaid interest from capitalising, a significant improvement over previous plans for low-income borrowers.
Credit card minimum payments are typically calculated as 1-2% of the balance plus interest, or a small fixed minimum (often £25 or $25). Paying only the minimum on a £5,000 credit card balance at 22.9% APR with a 2% minimum payment results in a repayment period of over 30 years and total interest charges of approximately £8,000 – over 160% of the original balance. This is one of the most expensive forms of debt available to consumers in both the UK and US, and the minimum payment structure is specifically designed to maximise interest income for the lender.
Most UK fixed-rate mortgages include Early Repayment Charges during the initial fixed-rate period (typically 2, 3, or 5 years). ERCs are typically calculated as a percentage of the outstanding loan balance – commonly 1-5% depending on how early in the fixed term you redeem. On a £250,000 mortgage, a 3% ERC amounts to £7,500. Before making large overpayments or switching mortgages, it is essential to verify whether ERCs apply and calculate whether the savings from the new rate or lower balance exceed the charge.
UK borrowers have strong protections under the Consumer Credit Act 1974 for loans under £25,000. These include the right to a cooling-off period, the right to early repayment with a maximum early settlement adjustment, and the right to receive accurate statutory notices. Section 75 of the CCA provides joint and several liability between credit card providers and retailers for purchases between £100 and £30,000. For mortgages, the FCA's Mortgage Conduct of Business (MCOB) rules provide extensive borrower protections, including affordability assessment requirements.
The standard monthly payment formula is M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the principal, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. For example, a $20,000 personal loan at 8% over 5 years: r = 0.08/12 = 0.00667, n = 60. Monthly payment = $405.53. Total paid = $24,332, total interest = $4,332.
Mortgage overpayments can save substantial interest over the loan term. On a £200,000 mortgage at 4.5% over 25 years (monthly payment £1,111), paying an extra £200 per month reduces the term to approximately 18 years and saves approximately £30,000 in interest. The earlier overpayments are made, the greater the savings, as they reduce the principal on which all future interest is charged. Most UK lenders allow up to 10% overpayment per year without ERCs.
For most UK students on Plan 2 (2012-2023 starters), voluntary overpayments are not financially optimal unless you are a high earner certain to repay the full debt within 30 years. If your debt will be partially or fully written off, every voluntary pound overpaid is effectively a gift to the government. However, for Plan 1 borrowers with smaller balances, or very high earners who will definitely repay in full regardless, early repayment can reduce interest charges. Always model your expected career earnings before deciding.
UK student loans are income-contingent and automatically written off after 25-40 years depending on the plan. Repayments are collected through payroll (HMRC) at 9% on income above the threshold. In contrast, US federal student loans are true debts with compound interest, no automatic write-off for most plans, and repayments that require active management. UK student loans are sometimes described as a graduate tax rather than a traditional loan because of their income-contingent, write-off nature.
Early Repayment Charges (ERCs) apply when you pay off a fixed-rate UK mortgage during the initial fixed-rate period, typically 2-5 years. ERCs are usually 1-5% of the outstanding balance and can amount to thousands of pounds. Many lenders allow overpayments of up to 10% per year without triggering ERCs. After the fixed-rate period ends, you can usually remortgage or repay without penalty. Always check your mortgage offer document for specific ERC terms.
US income-driven repayment plans cap monthly federal student loan payments at 5-10% of discretionary income. The SAVE plan (2023 onwards) caps undergraduate loan payments at 5% of discretionary income and prevents interest from accruing if payments do not cover monthly interest. Balances remaining after 20-25 years are forgiven (taxable as income, unless forgiven under PSLF). Public Service Loan Forgiveness forgives balances after 10 years for qualifying public sector employees tax-free.
On a £5,000 balance at 22.9% APR with a 2% minimum payment, paying only the minimum takes approximately 30-35 years and costs roughly £8,000 in interest – more than the original balance. On a $10,000 balance at 20% APR with a $200 minimum payment, it takes over 25 years. The minimum payment trap is one of the most costly financial situations a consumer can be in. Even increasing monthly payments by £50-£100 can cut repayment time in half.
UK borrowers benefit from the Consumer Credit Act 1974 (for loans under £25,000), which provides cooling-off rights, early settlement rights, and requires lenders to provide accurate statements. Section 75 of the CCA provides joint and several liability for credit card purchases of £100-£30,000 against the card provider. The FCA's MCOB rules govern mortgages and require affordability assessments. The Financial Ombudsman Service handles complaints and can award up to £375,000 in compensation.