When you take out a UK personal loan, the lender calculates a fixed monthly payment that will clear the full balance — principal plus all interest — by the end of the agreed term. This process is called amortisation.
The word comes from the French "amortir" — to kill or extinguish. Every payment you make kills off a small portion of the debt. The twist is that the split between interest and principal changes every single month — even though your payment stays the same.
Understanding amortisation changes how you think about debt. It reveals:
Each month, interest is calculated on the current outstanding balance. In month one, that balance is the full loan amount — so the interest charge is at its highest. As you pay down the balance month by month, the interest charge falls and an increasing proportion of your fixed payment goes toward principal.
Here's what that looks like in practice for a £10,000 loan at 7.9% APR over 3 years (monthly payment: £313.40):
| Month | Opening balance | Interest | Principal | Closing balance |
|---|---|---|---|---|
| 1 | £10,000.00 | £65.83 | £247.57 | £9,752.43 |
| 2 | £9,752.43 | £64.20 | £249.20 | £9,503.23 |
| 6 | £8,755.18 | £57.63 | £255.77 | £8,499.41 |
| 12 | £7,312.44 | £48.13 | £265.27 | £7,047.17 |
| 24 | £4,056.52 | £26.70 | £286.70 | £3,769.82 |
| 36 | £311.34 | £2.05 | £311.35 | £0.00 |
In month one, £65.83 goes to interest and £247.57 goes to reducing the debt. By month 36, almost the entire payment clears principal. This is why overpaying in the early months is so powerful — every extra pound reduces the balance on which future interest is calculated.
Enter your loan details to see the full year-by-year breakdown of interest vs principal for any loan. Open calculator →
APR stands for Annual Percentage Rate. In the UK, lenders are required by the FCA to quote it on all loan products so you can compare on a level playing field.
Lenders must give you a personalised rate before you sign. If the rate offered is higher than the representative APR, you are under no obligation to proceed. Use soft-search eligibility checkers before applying — they show you the rate you'll likely receive without leaving a mark on your credit file.
| Loan amount | Typical APR range | Common lenders |
|---|---|---|
| £7,500–£25,000 | 5.9%–7.9% | Banks, building societies, supermarket lenders |
| £3,000–£7,500 | 9%–15% | Banks, online lenders |
| £1,000–£3,000 | 15%–30% | Online lenders, credit unions |
| Credit cards | 20%–30%+ | Card providers (0% deals for good credit) |
| Credit unions | Up to 42.6% APR cap | Community lenders — often best for small amounts |
Extending the loan term reduces your monthly payment — but significantly increases the total interest you pay. This is one of the most important and most overlooked aspects of loan cost.
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 2 years | £452.27 | £854.52 | £10,854.52 |
| 3 years | £313.40 | £1,282.40 | £11,282.40 |
| 4 years | £243.59 | £1,692.12 | £11,692.12 |
| 5 years | £202.49 | £2,149.40 | £12,149.40 |
| 7 years | £154.21 | £3,153.24 | £13,153.24 |
£10,000 loan at 7.9% APR. Monthly payments rounded.
Going from a 3-year to a 5-year term saves £110.91/month — but costs an extra £867 in interest. The longer term is only cheaper in one narrow sense: the monthly cash outflow. Over the life of the loan, you pay substantially more.
Choose the shortest term your monthly budget can support. If you can manage the 3-year payment, don't take 5 years. The interest saving is real money.
Making overpayments on a personal loan reduces the outstanding principal faster, which means less interest accumulates on each subsequent month's calculation. The savings compound over the remaining term.
Standard monthly payment: £202.49. Total interest: £2,149.40.
| Extra payment | Interest saved | Term reduced by | Total paid |
|---|---|---|---|
| £0/month | — | — | £12,149.40 |
| £50/month | £486 | 12 months | £11,663.40 |
| £100/month | £800 | 21 months | £11,349.40 |
| £200/month | £1,153 | 32 months | £10,996.40 |
UK personal loan lenders can charge up to 58 days' interest as an ERC on overpayments. On a £10,000 loan at 7.9%, 58 days' interest is approximately £125 — small relative to the interest you'd save. Read your loan agreement or call your lender to confirm the ERC terms before overpaying significantly.
Emma borrows £8,000 at 6.9% APR over 3 years to renovate her kitchen.
James has three debts totalling £15,000 at an average 22% APR. He consolidates into a single loan at 9.9% APR over 5 years.
Priya needs £2,000 urgently. She compares her options:
| Factor | Personal loan | Credit card |
|---|---|---|
| Typical APR | 6%–25% (amount dependent) | 20%–30% (0% deals available) |
| Fixed repayment end date | Yes — built in | No — you choose minimum or more |
| Monthly payment flexibility | Fixed (overpayments usually allowed) | Flexible — minimum or more |
| Best for amounts | £3,000+ | Under £3,000 (especially with 0%) |
| Best for repayment period | Over 12 months | Under 12 months (0% deal) |
| Risk of extending debt | Low — fixed schedule | High — easy to pay minimum only |
For most borrowing above £3,000 that will take more than a year to repay, a personal loan offers more predictability and usually a lower rate than a standard credit card. The exception is a 0% purchase or balance-transfer deal — if you're certain you can clear the balance within the promotional period, a 0% card beats any personal loan rate.
Read our companion guide on credit card interest: How Credit Card Interest Builds Up.
Enter any UK loan to see monthly payments, total interest, amortisation table and overpayment savings.
Sources. The statutory and regulatory figures on this page are checked against FCA Handbook CONC: consumer credit and FCA: information for consumers. Last checked 2 September 2026; figures apply to the 2026/27 tax year unless a different period is stated.