See exactly what your loan costs — and how to pay it off faster

Loan repayments are calculated using the amortisation formula: M = P × r(1+r)^n / ((1+r)^n − 1), where M is the monthly payment, P is the principal (loan amount), r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments. Each monthly payment covers two things: interest on the remaining balance, and a portion of the principal. In the early months, most of your payment goes toward interest. As your balance decreases, more of each payment chips away at the principal — this is why extra repayments early in the loan term are so powerful. For example, a $20,000 loan at 9% over 5 years gives M = 20,000 × 0.0075(1.0075)^60 / ((1.0075)^60 − 1) = $415/month. Over the loan term you'd pay $4,910 in interest — but extra repayments can dramatically cut this figure.

Extra repayments directly reduce your principal balance, which lowers the amount of interest calculated each month. Because interest accrues on the remaining balance, any reduction in principal has a compounding savings effect throughout the rest of the loan. Even small amounts add up quickly. On a $20,000 loan at 9% over 5 years, adding just $100/month in extra repayments saves approximately $900 in interest and cuts 8 months off the loan term. On a larger loan — like a $400,000 mortgage — the same principle applies but the savings are tens of thousands of dollars. The earlier you make extra repayments in the loan term, the greater the impact — because you're reducing the principal at a point when it's highest and interest charges are largest. Use the calculator above to see the exact savings for your loan.

A fixed rate loan locks your interest rate for the entire loan term (or a fixed period). Your monthly repayment never changes, which makes budgeting predictable. The trade-off is that you may miss out if market rates fall, and fixed loans often have higher break fees if you pay them off early. A variable rate loan has an interest rate that moves with the market (typically linked to the central bank's cash rate). Your repayments can go up or down. Variable loans usually allow unlimited extra repayments without penalty, making them better suited for borrowers who want to pay off debt faster. In Australia, most personal loans are fixed rate. Home loans are offered both ways — many Australians split their mortgage: fixing a portion for certainty and keeping the rest variable for flexibility.

The comparison rate is a standardised interest rate that includes most fees and charges associated with a loan — not just the headline interest rate. In Australia, lenders are legally required to display the comparison rate alongside the advertised rate. A loan advertised at 6.5% p.a. might have a comparison rate of 7.1% once monthly account fees, application fees, and annual fees are included. The comparison rate is calculated on a $150,000 loan over 25 years under ASIC's guidelines, so it may not exactly reflect your situation — but it's the best single number for comparing loans side by side. Always compare the comparison rate, not the headline rate, when shopping for personal loans, car loans, or home loans.

Generally yes — paying off a loan early saves interest and frees up your cash flow. However, some loans charge early repayment fees (especially fixed-rate loans), so you need to weigh the interest saved against any break costs. For variable-rate loans with no early repayment penalties, extra payments are almost always worthwhile if the loan interest rate is higher than what you'd earn in a savings account. Most personal loans at 8–15% are well above savings rates, making extra repayments a guaranteed high return. The exception is low-rate debt (below 4%) where investing the extra money might yield more than the interest saved. Use the comparison in this calculator to see your break-even point. Our compound interest calculator can model what that money would earn if invested instead.