Loan Repayment Calculator

What this calculator does

The advertised interest rate on a loan tells you very little on its own. What matters is the monthly repayment you have to find, the total amount you hand back over the life of the loan, and whether the rate you were quoted is a flat rate or a reducing balance rate, because those two things are not remotely equivalent.

This calculator handles both. Enter the amount, the rate, the term and any upfront fees, choose how the interest is charged, and it returns your monthly repayment, the total interest, the true cost of the credit as a percentage of what you borrowed, and a month by month schedule showing how much of each payment goes to interest and how much reduces the balance.

That schedule is worth looking at closely. On a standard reducing balance loan, the early payments are mostly interest. Understanding that is what stops people from being surprised when six months of payments have barely moved the outstanding balance.

How the calculation works

On a reducing balance loan, interest is charged each month on whatever you still owe. As you repay, the balance falls and so does the interest portion of each payment, which means more of every payment goes towards the principal as the loan progresses. The monthly payment stays level, calculated using the standard amortisation formula.

On a flat rate loan, interest is calculated once on the original amount for the whole term and divided evenly across the payments. Your balance falls, but the interest charge does not. This is why a flat rate of 20 per cent a year costs roughly what a reducing balance rate of 36 per cent would cost, and it is the single most important thing to understand before comparing offers from different lenders.

Fees complicate the picture further. A management fee deducted upfront means you receive less than you borrowed while repaying the full amount, which raises the real cost above the headline rate. The calculator shows both the cash you actually receive and the total cost including fees.

The formula

Reducing balance monthly payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

where P is the principal, r is the monthly rate (annual rate ÷ 12 ÷ 100) and n is the number of months

Flat rate total interest = P × Annual rate × (Months ÷ 12)

Flat rate monthly payment = (P + Total interest) ÷ Months

True cost = (Total interest + Fees) ÷ Principal × 100

A worked example

Take a loan of ₦1,500,000 over 24 months at 24 per cent a year, with a ₦15,000 management fee.

On a reducing balance the monthly repayment is about ₦79,400. Over 24 months that totals roughly ₦1,905,000, of which ₦405,000 is interest. Adding the fee brings the cost of credit to ₦420,000, which is 28 per cent of the amount borrowed. In the first month, about ₦30,000 of the payment is interest and only ₦49,400 reduces the balance.

Now take the same headline rate as a flat rate. Interest is 24 per cent of ₦1,500,000 for two years, which is ₦720,000. The monthly payment rises to ₦92,500 and the total cost of credit becomes ₦735,000, nearly half the amount borrowed. Same stated rate, same term, and ₦315,000 more out of your pocket. That difference is why the question how is the interest calculated matters more than the question what is the rate.

Things worth knowing

Always ask how interest is charged

Flat rate and reducing balance are different products presented with the same kind of number. If a lender will not tell you plainly which one applies, or cannot give you a total repayment figure, treat that as the answer to a different question.

Look at the total, not the monthly

Stretching a loan over a longer term lowers the monthly payment and raises the total cost, sometimes dramatically. A comfortable monthly figure attached to a large total is how affordable loans become expensive ones.

Fees are part of the price

Management fees, insurance, legal charges and processing fees are all cost. Some lenders keep the headline rate low and recover it in charges. Compare the total amount repaid plus fees against the cash you actually receive.

Check the early settlement terms

On a reducing balance loan, paying early saves real interest. Some agreements penalise early settlement and cancel that benefit entirely. Read that clause before you sign, not when you come into money.

Common mistakes to avoid

Comparing a flat rate from one lender against a reducing balance rate from another as if they were the same number.
Budgeting for the monthly payment without checking what the loan costs in total.
Forgetting upfront fees deducted from the disbursement, so you receive less than you borrowed.
Assuming early repayment always saves interest without reading the settlement clause.
Taking a longer term purely to lower the monthly figure, without looking at what it adds to the total.
Ignoring late payment charges, which on some short term digital loans compound very quickly.

Frequently asked questions

What is the difference between flat rate and reducing balance?

Reducing balance charges interest on what you still owe, so the interest falls as you repay. Flat rate charges interest on the original amount for the whole term regardless of repayments. For the same stated percentage, a flat rate costs roughly 1.8 times as much over a typical term.

How do I compare two loan offers properly?

Put both through this calculator with their actual interest method, add every fee, and compare the total amount you repay against the cash you actually receive. That single comparison cuts through every difference in how the offers are presented.

Does this calculator give financial advice?

No. It performs arithmetic on figures you supply. Whether a loan is a sensible decision depends on your income, your other obligations and your circumstances. This is an information tool, and we are not financial advisers.

Why is so much of my early payment going to interest?

Because on a reducing balance loan the interest is charged on the outstanding balance, which is at its highest at the start. This is normal and it reverses over the term, with later payments going overwhelmingly to principal.

Should I make extra repayments?

On a reducing balance loan with no early settlement penalty, extra payments reduce the principal and therefore all the future interest it would have generated. On a flat rate loan, the interest is usually fixed at the outset, so early repayment may save you very little. Check your agreement.

What about digital lending apps?

Short term app loans often quote a rate for a period of weeks rather than a year, which makes the annual cost far higher than it first appears. Convert everything to an annual basis before comparing, and be cautious with any lender whose repayment terms are not stated clearly in writing.