This calculator helps you work out exactly what your regular repayments will be on your personal loan.
Using this calculator, you can:
Work out how much your regular repayments will be
See the overall breakdown of interest payments over the entire loan term
See how much a change in interest rates will impact your repayments
Work out how much you will end up paying if you paid interest only on the loan for a period.
How can I bring down my interest bill?
You might be looking at your results unhappy with how much you will be shelling out in interest. There are a couple of steps you might be able to take that could reduce your interest bill.
Refinancing to a lower interest rate
A simple way to reduce the interest you will be paying is to refinance to a different loan product or lender who offers a lower interest rate - if you’re on a variable rate. Refinancing is simple: your new lender pays off your outstanding debt amount, then you continue making your repayments to your new lender, at the new rate.
Keep in mind most loan products charge break fees or early termination fees for ending the loan term early, especially on fixed-rate loans, so you’ll need to factor these in to see if you still come out ahead.
There’s a couple of ways refinancing can be highly beneficial. If you have outstanding debts to several different lenders, you could take out a debt consolidation loan to combine them all into one regular repayment. This can be both logistically easier and if you manage to find a lower rate, save you money.
If you have a home loan, refinancing your home loan to pay off your personal loan could also be a good strategy, since many home loans charge lower interest rates than personal loans. However you will need to be careful because while, yes, home loans feature lower interest rates, they feature lengthier loan terms so you will pay more interest in the long run. This is because the principal and repayments are stretched over 25-30 years, not 1-7.
Another way you can reduce your overall interest bill is to pay more than your minimum repayments, particularly at the start of the loan term. Interest is calculated daily, based on the outstanding amount you owe. By paying more than you have to, you are reducing the principal amount you owe, and therefore the interest you will be charged is lessened.
Let's say you borrow $50,000 at a 10% p.a interest rate, to be repaid over five years. Using the Infochoice Personal Loan repayment calculator, your monthly repayments would be $1,062.35, with a total interest bill of $13,741.13. Now, let's say you pay an additional $500 each month. This would bring your total interest bill down to $8,399, and would also shorten the loan term to 3 years, 2 months.
What is interest only?
Some lenders allow you to temporarily switch your personal loan repayments to interest only. This means you only pay the interest on the amount you have borrowed, without making any contributions towards the principal. Let's return to the above example, owing $50,000 at 10% p.a over five years. If you began this loan term only paying the interest, your monthly repayments would decrease to $416 (worked out using the calculator). Interest only can be useful if you have run into temporary financial difficulty.
However, in the long run, you will end up paying more in interest, because you will owe the money for a longer period of time. After two years paying interest only on our example, you would have already shelled out $15,000 in interest, more than you would have over the whole loan term paying principal and interest. Your repayments will also be higher after the interest-only period because you have condensed the principal by a couple years.
Can paying fortnightly or weekly save you money?
From playing around with the calculator, you might have noticed switching repayments to fortnightly or even weekly can bring down your overall interest bill slightly. In our example, switching to fortnightly repayments brings the interest bill down to $13,631.47, while weekly repayments means your interest bill drops to $13,584.43.
Again, this is because interest is calculated daily. Every time you make a repayment of the principal, the amount used to calculate how much interest you owe decreases. After a weekly repayment, your next week will be calculated subtracting whatever portion of the principal you paid off that week.
If you switched from monthly payments to fortnightly, it’s easy to see why. There are 12 months in a year, but 26 fortnights, or 13x 4-week blocks. You are effectively making nearly one extra month’s worth of repayments in a year.