How repayments are calculated
A standard repayment loan uses the amortisation formula: the monthly payment is fixed, and each payment covers the interest accrued that month with whatever remains going to the principal. Because the interest is charged on the outstanding balance, and that balance falls over time, the split between interest and principal shifts steadily across the term.
The payment itself — the EMI, or equated monthly instalment — is M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the amount borrowed, r the monthly interest rate (the annual rate divided by 12) and n the number of monthly payments. Borrowing 10,000 at 6% a year over five years gives r = 0.005 and n = 60, so M ≈ 193.33 a month and about 1,600 in interest over the term.
Why early payments barely touch the balance
This is the part the headline monthly figure hides. On a 25-year mortgage at 6%, roughly three-quarters of the first year's payments go to interest. It takes over half the term before more of each payment goes to principal than to interest. The schedule above makes that visible, and it is the single most useful thing to look at when deciding between terms.
It also explains why overpaying early has a disproportionate effect: a payment made against the principal in year one avoids interest on that amount for the remaining twenty-four years.
Term length is a trade
A longer term lowers the monthly payment and raises the total cost, and the relationship is not gentle. Extending a loan from 15 years to 30 might cut the monthly figure by a third while roughly doubling the interest paid. Both numbers are shown above so the trade is explicit.
What this calculator does not include
It models the loan itself. It does not include arrangement fees, early repayment charges, insurance that a lender may require, or — for mortgages — property taxes and building insurance that are often collected alongside the payment. It assumes a fixed rate for the whole term; a variable or tracker rate will diverge from this the moment it moves. Treat the figures as the loan's shape, not a quotation.