Business loan calculator UK

Business loan interest may be charged in different ways, and it can all get pretty complicated. However, a simple way to cut through the financial jargon is to understand that interest charges on all loans are accrued using the same basic structure. To achieve a good estimate of the interest you’ll pay over the life of the loan you only need to know:

• The principal – this is the sum you’ll borrow (e.g. £10,000).
• The interest rate APR – this means Annual Percentage Rate and it shows the true rate of interest you’ll pay per year regardless of how the interest is calculated. All business loans must reveal their APR by law and it’s the only way you can compare loan costs. APR is always  shown as a percentage. An APR of 5% means you’ll pay 5% interest on the loan sum per year.
• The term of the loan – this is the duration of the loan (e.g. 3 years).

To calculate your business loan interest, use this formula: Principal × APR x time. 

This means you multiply the loan amount (principal) by the annual interest rate (APR) and loan term (in years). For monthly payments, you then divide the result by the number of months in the term. 

Example of business loan interest calculation:

£10,000 borrowed at an APR of 5% over 3 years:

£10,000 x 5% = £500 interest charged per year

£500 x 3 years = £1,500 total interest you’ll pay over the term of the loan

£1,500 divided by 36 months (3 years) = £41.66 interest charged per month

What’s the difference between APR and AER?

APR stands for Annual Percentage Rate and it shows borrowers the true rate of interest they’ll pay on a loan regardless of how the interest is charged.

AER stands for Annual Equivalent Rate, and it shows the true rate of interest you’ll make on your savings. AER helps savers to compare accounts to get the best return on their saved cash.