Compound Interest Loan Calculator
Estimate the periodic repayment and total interest on a reducing-balance loan where interest compounds on the outstanding balance each period.
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Calculation breakdown
- Repayment
- principal × r ÷ (1 − (1+r)^-n), r = rate/periods per year
- Total interest
- (repayment × periods) − principal
Worked example
A $25,000 loan at 9% p.a. over 5 years with monthly repayments works out to roughly $519 a month, totalling about $6,140 in interest over the life of the loan.
Assumptions
- Assumes a standard reducing-balance loan with no fees.
- Repayment frequency changes the number of compounding periods used.
- Extra repayments are not modelled here; see the early loan repayment calculator.
How this calculator works
Most Australian personal, car and home loans use reducing-balance compounding, where interest is charged only on the remaining balance each period. This calculator uses the standard amortisation formula to work out the periodic repayment, total interest and total repaid over the chosen term.
Frequently asked questions
Why does the interest portion shrink over the life of the loan?
Each repayment reduces the outstanding balance, so the interest charged on the smaller balance the next period is lower, meaning more of each repayment goes to principal over time.
What repayment frequency should I use?
Match it to your loan contract, commonly monthly, fortnightly or weekly; more frequent repayments of the same annualised amount can slightly reduce total interest.
Can I pay this loan off faster?
Yes, use the early loan repayment calculator to see how extra repayments shorten the term and cut total interest for a compounding loan like this one.
Results are estimates only and are not financial, tax, legal or credit advice.