How loan repayments are calculated
Personal loans in the UK are repaid in equal monthly instalments. Each payment covers the interest built up that month plus a slice of the loan itself, and the payment is sized so the balance hits zero exactly at the end of the term. The standard amortisation formula does the sizing:
P is the amount borrowed, r the monthly rate (annual rate divided by 12) and n the number of monthly payments. This calculator applies the APR you enter as that annual rate; lenders compound their quoted APR slightly differently and may add fees, so expect real quotes to differ by a small amount.
Worked examples
Notice how the smaller loan carries the higher rate and, pound for pound, the heavier interest burden. That pattern is typical of the UK loan market rather than a quirk of the examples.
Representative APR: read the small print
That eye-catching rate in the advert is a representative APR, which means only 51% of accepted applicants have to get it. Nearly half can be offered something worse once the lender has looked at their credit file, and you usually only find out after a full application. Many lenders now offer soft-search eligibility checkers that estimate your personal rate without marking your credit file, which is a safer way to shop around. It is also worth knowing that loan pricing is tiered: rates on amounts between about £7,500 and £15,000 are typically the keenest, while small loans of £1,000 to £3,000 carry much higher APRs. Before applying in earnest, it is also worth checking your credit report with the main credit reference agencies: a recorded missed payment, an unregistered address or an error you never knew about can be the difference between the headline rate and something far worse.
Keeping the cost down
Three levers control what you pay: the rate, the amount and the term. The rate is set by the lender, but the other two are yours. Borrow only what you need, and pick the shortest term whose payment you can comfortably afford, because every extra year is another year of interest on the outstanding balance. When comparing quotes, ignore the temptation of the smallest monthly figure and compare the total amount repayable instead, a number every UK lender must show you: a low payment stretched over seven years is usually the most expensive option on the page. Remember too that you have a legal right to settle a personal loan early, with the lender able to charge at most around one to two months of interest as compensation, so a windfall can cut the total cost even after the loan has started. This is guidance, not financial advice: if repayments would stretch you, the government-backed MoneyHelper service offers free support before you commit.
Frequently asked questions
What does representative APR mean?
The advertised representative APR only has to be offered to 51% of accepted applicants. The other 49% can be offered a higher rate based on their credit history, income and the loan size. The rate you are actually quoted after applying is the one that matters.
Is APR the same as the interest rate?
Not quite. APR is the total yearly cost of borrowing including compulsory fees, expressed as a percentage, which makes it the fairest number for comparing loans. On most personal loans with no arrangement fee the APR and interest rate are very close.
Can I repay a personal loan early?
Yes. Under the Consumer Credit Act you can settle early at any time, and lenders can charge at most around one to two months of extra interest as compensation. Ask for a settlement figure, and check whether partial overpayments are allowed too, as they reduce the interest you pay.
Why do smaller loans have higher APRs?
Lenders' fixed costs of setting up and running a loan are spread over less money, so rates on £1,000 to £3,000 loans are usually much higher than on £7,500 to £15,000, where the most competitive rates tend to sit. Sometimes borrowing slightly more actually costs less per pound.
Does a longer term make a loan cheaper?
It lowers the monthly payment but raises the total cost, because interest is charged on the balance for longer. If you can manage the higher payment, a shorter term almost always means paying less overall.