Finance Tools
Work out the instalment, the total interest and the full repayment schedule for a business loan or asset finance — and convert a quoted flat rate into the reducing-balance rate that costs the same.
Overview
Enter the amount, the annual rate and the term to get the monthly instalment, the total interest and a month-by-month schedule showing where each payment goes. Add an overpayment to see what it removes from the term and from the interest.
The part worth the page, though, is the flat-rate conversion. Asset finance and short-term business lending are routinely quoted as a flat rate, which charges interest on the original amount for every month of the agreement, whether or not the balance has fallen. It is written in the same units as an ordinary rate — a percentage, per year — and it means something close to twice as much.
How much depends on the rate and the term together, and the figures are worth having concretely: over 60 months a 5% flat rate costs the same as 9.15% reducing, and over 36 months the same 5% flat comes to 9.31%. Both numbers come from this calculator, and a test checks them against the annuity formula rather than against a rule of thumb.
This works out the arithmetic of terms you have been offered, in the same way the VAT calculator works out tax. It is not advice about whether to borrow, and nothing you type is transmitted anywhere.
Step by step
Type what is being borrowed, the annual interest rate you were quoted, and how many months the agreement runs for.
The monthly payment appears with the total interest and the total repaid. The total is the figure worth comparing between offers.
If a lender quoted a flat rate, enter it separately. It converts to the reducing-balance rate that would cost the same, which is usually close to double.
Add an amount to pay each month on top of the instalment to see how many months it removes and how much interest it saves.
Background
Almost every loan you will meet charges interest on the outstanding balance. You borrow, you make a payment, part of it clears interest for that month and the rest reduces what you owe — so next month's interest is smaller, and the month after that smaller still. That is the reducing-balance arrangement, and it is what a rate normally means.
A flat rate does something different. It calculates the whole interest bill at the start, on the original amount, for the entire term, and then divides the total into equal instalments. In the last year of a five-year agreement you are still paying interest on money you repaid in the first, because the calculation never looked at your balance. Both are quoted as an annual percentage, and nothing in either number tells you which kind it is.
The gap is large and consistently in the same direction. Across the rates and terms businesses actually use, a flat rate converts to between roughly 1.6 and 1.95 times the reducing-balance rate that would cost the same. Where in that range depends on both: the multiple is closest to double at low rates, and falls steadily as the flat rate rises. So a lender quoting 6% flat against a bank's 10% is offering the more expensive deal, by a margin that is invisible unless you convert.
The reducing-balance structure also explains where each instalment goes, which is the other thing the schedule makes visible. Early payments are mostly interest and late ones mostly principal, because interest is charged on a balance that starts large. That is not a fee structure or a trick; it falls out of charging interest on what is owed. It does mean an overpayment early removes interest for every remaining month, while the same amount late removes almost none.
One small thing worth naming, because it looks like an error and is not. The final instalment is almost never identical to the others. A monthly payment is a rounded figure, so it cannot divide the debt evenly, and the last one is whatever clears the balance exactly. Real lenders do the same. A schedule that instead ends at a balance of a few pence either way is one built from floating-point arithmetic that nobody reconciled.
What none of this includes is fees. An arrangement fee, a documentation charge or a broker's commission is a real cost of borrowing and does not appear in an interest rate. That is what an APR is for: it folds the charges into a single comparable figure, which is why a loan's APR sits above its interest rate and why APR is the number to compare when you have it.
Reference
Three inputs produce the instalment, and a fourth changes what it costs. The one that most often turns out to mean something different from what the reader assumed is the rate.
The amount borrowed
The sum advanced, after any deposit and before any fees added to the balance. A fee rolled into the loan is borrowed money and belongs in this figure.
Required
The annual rate
And, crucially, which kind it is. A reducing-balance rate goes in the main field; a flat rate goes in the comparison field, because putting one in the other understates the cost by nearly half.
Required
The term in months
How long the agreement runs. A longer term lowers the instalment and raises the total, which is the trade the two figures shown together are meant to make visible.
Required
Any regular overpayment
An amount paid on top each month. It comes entirely off the balance, so it removes interest for every month that follows — which is why it saves more than its face value.
Optional
The total repaid
Amount plus interest. The figure to compare between offers, because two loans with the same instalment over different terms are not the same loan.
Optional
The final instalment
Shown separately because it differs from the rest. Rounding means the regular payment never divides the debt evenly, so the last one clears whatever is left.
Optional
What is not included
Arrangement fees, documentation charges, broker commission, and any early-settlement penalty. All are real costs and none appears in an interest rate.
Optional
Who it helps
Asset finance is where flat rates are most common, and where the quoted number is most likely to be compared against a bank rate it is not comparable with.
A dealer or supplier arranging the finance is quoting terms they chose. Converting the rate is a two-minute check on whether the convenience has a price attached.
A vehicle, a machine or a piece of kit bought on finance is a fixed monthly commitment against variable income. The total repaid is the number that matters to that decision.
Asked regularly whether an offer is good. The schedule splits interest from principal month by month, which is also what the accounts need.
Whether to put spare cash against a loan is a question the schedule answers directly: it shows how much interest a payment now removes, and how little the same payment removes later.
Different terms and different rate structures make headline instalments meaningless. Total repaid, on the same amount, is the comparison that survives.
Do it properly
Flat or reducing. Nothing in the number itself says, the difference is close to a factor of two, and the question takes one line in an email.
A longer term always produces a smaller instalment and a larger total. Comparing instalments across different terms rewards the more expensive offer.
It folds the compulsory fees in, which an interest rate never does. Two APRs on the same amount and term are directly comparable in a way two interest rates are not.
The saving comes from removing interest on every remaining month, so a payment in year one is worth several times the same payment in year four. Check the early-settlement terms first.
A fee added to the balance is borrowed money that accrues interest like everything else. Leaving it out understates both the instalment and the total.
A schedule closing at anything other than zero means somebody built it in floating point. It is a small error and a reliable sign of how carefully the rest was done.
Financing a three-year machine over five years means paying for it after it has stopped working. The instalment looks better and the arrangement is worse.
Avoid these
Comparing a flat rate against a reducing-balance rate
Convert first. Over 60 months a 5% flat rate is the equivalent of 9.15% reducing, so a 6% flat quote loses to a 10% bank rate despite looking like the better deal.
Choosing on the monthly payment
Look at the total repaid. Any offer can produce a smaller instalment by lengthening the term, and every month added increases what the loan costs in total.
Ignoring arrangement and documentation fees
Add them to the amount, or compare APRs instead. Fees do not appear in an interest rate, and on a short loan they can outweigh a difference of several points.
Assuming an overpayment always pays off
Check for early-settlement charges first. Where they exist, an overpayment can trigger a penalty that cancels the interest it saved — the arithmetic is only half the question.
Reading the odd final instalment as an error
Expect it. A rounded monthly payment cannot divide the debt evenly, so the last one clears the remainder. Lenders do exactly this, and a schedule that does not is the suspect one.
Treating an interest-only quote as comparable
Ask what is left at the end. Instalments that cover only interest look far cheaper because they repay nothing, and the full balance still falls due.
Stretching the term to make it affordable
Reconsider the purchase instead. If the instalment only works over a term longer than the asset's useful life, the term is not the thing that needs adjusting.
FAQ
The Loan Repayment Calculator is at the top of this page — free, no signup, nothing uploaded.
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