How UK personal loans differ from car finance and student loans

Most UK personal loans are amortising. Each month the lender charges interest on what you still owe, and the rest of your payment reduces the balance. Early payments are mostly interest. Later payments are mostly capital. The payment is set so that the balance lands exactly on zero at the end of the term.

The standard formula is M = P × r(1 + r)^n ÷ ((1 + r)^n − 1), where P is the amount borrowed, r is the annual rate divided by 12 and n is the number of months. You do not need to work it by hand. Put £10,000, 8.9% and 4 years into the loan repayment calculator and you get the figures in the table.

The most useful number on a quote is usually the total amount payable. It tells you what the loan actually costs. The monthly payment only tells you whether you can afford it.

With hire purchase you usually pay a deposit, then fixed monthly payments that cover the rest of the car's price plus interest. You own the car once the last payment (and any small option-to-purchase fee) is made. Leaving fees aside, that is the same level-payment maths as a personal loan. £8,000 of HP at 7.9% over four years is £194.93 a month, with £1,356.55 interest and £9,356.55 repayable. You can check it with the car example button in the loan repayment calculator.

The legal position is different, though. With a personal loan you own the car from day one and the lender has no claim on it. With HP the finance company owns the car until you finish paying. That gives you some protections in law. Once you have paid at least half of the total amount payable, you can usually hand the car back and walk away from the rest (voluntary termination, sections 99 and 100 of the Consumer Credit Act 1974). And once you have paid a third or more, the lender generally needs a court order to take the car back if you fall behind (section 90).

Personal Contract Purchase (PCP) works differently. Part of the car's price is held back as a large optional final payment at the end, often called the balloon or guaranteed future value. Your monthly payments are lower because you are not clearing the whole balance, but you still pay interest on the part that is held back. At the end you pay the balloon, hand the car back, or part-exchange it. A level-payment calculator cannot model that properly, so for PCP use the lender's own schedule and compare the total amount payable.

For regulated consumer credit, the Consumer Credit Act gives you the right to repay early, in full or in part, and you should pay less interest as a result. In our calculator's model, adding £50 a month to the £10,000 · 8.9% · 4-year loan (£298.38 in total) clears it in 39 months instead of 48, and total interest falls from £1,922.04 to £1,539.66. That saves 9 months and £382.38. Adding £100 a month clears it in 33 months and saves £635.42.

Lenders are allowed to recover some of their costs, within limits. When you settle, the rules on early settlement let the lender calculate your settlement figure from a date shortly after you ask, and for agreements longer than a year they can push that date back by up to about a month. So a settlement figure is usually a little more than the balance on your statement. On a fixed-rate loan, a separate compensation charge can only be claimed if you repay more than £8,000 in a 12-month period. It is capped at 1% of the amount repaid early, or 0.5% if a year or less is left, and it can never be more than the interest you would have paid (section 95A). An extra £50 a month is £600 a year, well under that threshold.

Our calculator does not model settlement dates, compensation charges or overpayment limits in the agreement itself. Before you overpay, ask the lender for a settlement figure or check its overpayment terms. You can also use the loan repayment calculator to see roughly what a given extra payment saves.

Stretching the same loan over more months makes each payment smaller, but you pay interest for longer. For the same £10,000 at 8.9%, three years costs £317.53 a month and £1,431.16 in interest. Five years drops the payment to £207.10 but the interest rises to £2,425.91. That is almost £1,000 more for the same money.

A bigger loan over five years shows the same thing. £15,000 at 9.9% is £317.97 a month, with £4,078.09 in interest and £19,078.09 repayable. When two quotes have similar monthly payments, check whether one simply runs for longer.

Also check that the rate on your offer is the one you entered. Adverts show a representative APR, and at least 51% of people who take out credit through that advert must get that rate or better. Your personal rate can be higher. Use the rate in your own pre-contract information when you run the numbers, not the headline figure.

A UK student loan is repaid through the tax system as a share of income, not as a fixed instalment. For 2026/27, GOV.UK sets the Plan 2 threshold at £29,385 a year. On a £35,000 salary you repay 9% of the £5,615 above it, which is about £505 a year or roughly £42 a month through payroll. If your pay drops below the threshold, repayments stop. If it rises, they rise too.

The balance does not have to clear on a set date either. Plan 2 loans are written off 30 years after the April you were first due to repay, and Plan 5 loans after 40 years, whatever is left. That is why a monthly-payment calculator gives the wrong kind of answer for a student loan. What you pay each month depends on your salary, not on the balance or the interest rate.

For your own plan and salary, use the student loan calculator (Plans 1, 2, 4 and 5 plus Postgraduate). The student loan repayments guide covers thresholds, two-plan cases and Self Assessment in detail.

A repayment mortgage is also amortising, so the formula looks familiar. The terms are much longer, though, and deals usually involve an initial fixed rate followed by a different rate, product fees and loan-to-value bands. The mortgage calculator is set up for that, and the mortgage payments guide explains the maths.

A credit card has no fixed term. The balance goes up when you spend and down when you pay, and the minimum payment shrinks as the balance falls, which is why minimum-only payments take so long. If you are clearing a card with a fixed monthly amount, use the credit card payoff calculator. Our credit card payoff guide explains how the FCA's minimum-payment rules work.

The examples above treat the rate as a simple annual rate charged monthly. They do not reproduce a lender's APR or APRC, which can include certain fees. If an arrangement fee is added to the loan, add it to the amount you borrow before running the numbers. PCP balloon payments, early settlement dates and compensation charges, overpayment caps, missed-payment fees, payment protection and variable rates are all outside the model.

You also have 14 days to withdraw from most regulated credit agreements without giving a reason (section 66A of the Consumer Credit Act). You would need to repay the money plus interest for the days you had it. The pre-contract credit information and the agreement itself set out the exact terms. If you are worried about repayments, MoneyHelper, StepChange and National Debtline all offer free, impartial help.

If you bought a car on finance between 6 April 2007 and 1 November 2024, the FCA has set up a compensation scheme for some agreements where commission arrangements were not properly disclosed. Parts of it are currently on hold pending a legal challenge, so check the FCA's car finance claims page for the latest position before you do anything. You do not need to use a claims company to complain.

Open the loan repayment calculator and use its example buttons. They reproduce the £248.38, £194.93 and £317.97 figures above, and the extra-payment example gives the 39 months and £382.38 saving. Then enter the amount, rate and term from your own quote, and try a shorter term or a small overpayment to see how much interest changes.

Use the student loan calculator for student finance, the credit card payoff calculator for card balances and the mortgage calculator for home loans. If you are checking whether a new monthly payment fits your budget, the take-home pay calculator shows what your salary looks like after tax and National Insurance.