What this calculator works out
This calculator takes one borrowing amount and two sets of terms — an APR and a length for each loan — and returns the monthly payment and total repayment for both, then identifies which costs less overall.
It exists because the monthly payment on its own is a poor guide. A longer loan almost always has a lower monthly payment and a higher total cost, and comparing the two figures side by side is the only way to see the trade-off clearly.
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Before you compare
- Use representative APR only as a starting point. Advertised rates need only be offered to 51% of successful applicants, so the rate you are actually offered may be higher.
- Compare the same borrowing amount across both options, or the comparison is meaningless.
- Check whether either loan has arrangement or early repayment fees, as this calculator models interest only.
- Consider whether you could clear the borrowing early, and whether the agreement allows it without penalty.
Interest is charged on the balance outstanding. Stretching a loan over more months leaves a larger balance outstanding for longer, so more interest accrues — even at the same rate. A lower monthly payment is not a cheaper loan; it is a longer one.
How this calculator works
Both loans use the standard amortising repayment formula:
r = APR ÷ 12 ÷ 100, n = years × 12
Monthly payment = P × r ÷ (1 − (1 + r)−n)
Total repaid = monthly payment × nWhere P is the amount borrowed. This assumes a fixed rate and equal payments throughout, which is how most UK personal loans work. If the rate is zero, the calculator simply divides the amount by the number of months.
The total repaid figure is the one to compare. It is what the borrowing actually costs you.
Worked example: £10,000 over five years or four
Using the default figures — £10,000 borrowed, Loan A at 6% over five years and Loan B at 8% over four years:
- Loan A: £193.33 a month × 60 months = £11,599.68 total
- Loan B: £244.13 a month × 48 months = £11,718.20 total
- Difference: Loan A costs £118.52 less overall
This is a deliberately close example, and it shows why the headline rate is not the whole story. Loan B has the higher APR but the shorter term, which almost cancels out the rate difference. Loan A wins on total cost by a small margin while also costing £50 a month less — but it keeps you in debt for an extra year. If the rates were reversed, or the terms were further apart, the answer would flip.
Common mistakes
- Choosing on monthly payment alone. It is the easiest number to compare and the least informative.
- Assuming you will get the representative APR. Use a soft-search eligibility checker before applying, so you are comparing rates you can actually obtain.
- Making multiple full applications to compare. Each leaves a hard footprint on your credit file, and several in a short period can count against you.
- Ignoring fees. An arrangement fee or early settlement charge can outweigh a small rate advantage.
- Borrowing over a longer term than the thing you are buying will last. Still paying for something you no longer own is a bad position.
Frequently asked questions
Should I take the shorter or longer term?
Take the shortest term whose monthly payment you can comfortably afford in an ordinary month, including the months with unusual costs. That minimises total interest while leaving enough slack that you do not miss a payment. Stretching the term to reach an affordable payment is legitimate, but do it knowingly rather than by default.
What is representative APR?
It is the rate a lender must offer to at least 51% of the people who successfully apply. The other 49% may be offered more. It is a useful comparison figure between products but it is not a quote, which is why a soft-search eligibility check before applying is worth the few minutes it takes.
Can I pay a personal loan off early?
Usually. Under UK consumer credit rules you generally have the right to settle early, and the lender must reduce the interest accordingly, though they may charge compensation of up to one or two months' interest depending on the time remaining. Ask for a settlement figure rather than assuming the remaining balance is what you owe.
Is a 0% credit card cheaper than a loan?
For a smaller amount that you can clear within the promotional period, often yes. For larger amounts, longer periods, or where you want the certainty of a fixed end date and a fixed payment, a loan is usually the more reliable choice. The risk with the card is reaching the end of the 0% period with a balance still outstanding.
Does this include fees or insurance?
No. It models interest and term only. Add any arrangement fee to the total repaid when comparing, and treat optional insurance as a separate decision rather than part of the borrowing cost.
Related tools
References
- MoneyHelper — guidance on comparing personal loans, APR and early settlement
- Financial Conduct Authority — consumer credit rules including representative APR and early repayment
Sources are checked at publication and can change — how I choose and check references.