Loan Calculator

How is loan interest calculated?

Most lenders charge a fixed rate of interest on their unsecured personal loans. This means you’ll pay the same rate of interest for the whole loan term.

The interest rate is charged as a percentage of the amount borrowed.

Lenders may calculate and charge interest in slightly different ways, so it’s a good idea to check the total amount repayable before taking out a loan.

What does APR mean?

APR stands for annual percentage rate and tells you the total cost of borrowing over one year.

It takes into account the interest rate as well as any fees charged as standard. The higher the APR, the more expensive your loan.

The APR helps you to compare the total cost of loans on a like-for-like basis and makes it easier to find the cheapest option, as it means you don’t need to check for any fees that may be charged alongside the interest.

Lenders advertise a representative APR on their loans, but it’s important to note that you may not necessarily receive this rate. Only 51% of successful applicants need to receive this rate; the remaining 49% could be charged more than this.

When you apply for a loan or check your eligibility, you will receive a personal APR which is the rate the lender will charge you based on the information you have provided.

How to reduce the cost of a loan

A number of different factors affect the cost of a loan so there are several ways you may be able to cut costs.

• Shorten the loan term. Even though a longer loan term means your monthly repayments are smaller, you pay more interest overall. By repaying your loan over a shorter term, you can cut the amount of interest you pay.
• Improve your credit score. A better credit score could allow you to access loans with more competitive interest rates. Lenders typically view borrowers with a better credit score as a lower risk, which can make them more likely to offer a lower rate of interest than for someone with a poorer credit history.
• Compare loans. Before applying for a loan, it’s worth comparing options to find the cheapest deal that meets your requirements. It’s also possible to check your eligibility for a loan to see which deals you qualify for.
• Pay off your loan early. Once you have a loan, you can reduce the amount of interest you pay by making overpayments or by clearing your loan balance in full before the end of the term (if you can afford to do so). Make sure you check for any early repayment charges.

Loan types

There are several types of loans available, including:

• Unsecured loans: Also known as personal loans, these don’t require any form of security.
• Bad credit loans: These are like personal loans except they are specifically designed for borrowers with poor credit histories. Bad credit loans are likely to charge a higher rate of interest than standard personal loans.
• Guarantor loans: These are a type of unsecured loan, but the borrower will name another individual as guarantor on the loan agreement. The guarantor agrees to repay the loan if the borrower is unable to.
• Secured loans: You need to put forward your home or another valuable item as security for a secured loan. The lender may repossess this property if you default on the loan.