How to Calculate Your Loan Repayments in Australia (A Complete Guide)

Whether you're taking out a personal loan, a car loan, or borrowing for an investment, understanding how your repayments are calculated puts you firmly in control. This guide explains the maths behind loan repayments in plain English — and shows you how to use RemitIQ's free Loan Calculator to plan any borrowing scenario.

The Core Formula: How Repayments Are Calculated

Monthly loan repayments are calculated using the amortisation formula, which factors in three variables:

• P — Principal (the amount you borrow)
• r — Monthly interest rate (annual rate ÷ 12)
• n — Total number of repayments (loan term in months)

The formula is:

Monthly Payment = P × [r(1+r)ⁿ] ÷ [(1+r)ⁿ - 1]

In plain English: the bank works out how much you need to pay every month so that, at the end of the loan term, you've repaid the full principal plus all the interest — with nothing left over.

A Worked Example

Let's say you borrow $20,000 AUD for a car at 7% p.a. over 5 years (60 months).

• Monthly rate (r) = 7% ÷ 12 = 0.5833%
• n = 60

Plugging into the formula: Monthly payment ≈ $396

Over 60 months, you'd pay a total of $23,760 — meaning the interest costs you $3,760 on top of the original $20,000.

Try this exact scenario (and adjust the variables) in RemitIQ's Loan Calculator.

What Affects Your Monthly Repayment?

1. Interest Rate

The single biggest driver of your total loan cost. Even a 1% difference on a large loan can add or save thousands over the life of the loan. Always compare interest rates across multiple lenders.

2. Loan Term

A longer loan term lowers your monthly payment but drastically increases the total interest paid. A shorter term means higher monthly payments but significantly less total cost.

Example: $20,000 at 7% p.a.

• 3-year term: ~$618/month, ~$2,250 total interest
• 5-year term: ~$396/month, ~$3,760 total interest
• 7-year term: ~$300/month, ~$5,200 total interest

3. Principal Amount

Obviously, borrowing less means paying less. If you can increase your deposit (for a car, for example), do it — the savings on interest are always greater than the benefit of keeping cash in a savings account.

4. Repayment Frequency

Most Australian lenders allow weekly, fortnightly, or monthly repayments. Fortnightly repayments (26 per year vs. 12 monthly) effectively make one extra monthly payment per year, reducing your loan term and total interest significantly.

Understanding Amortisation: Why You Pay More Interest Early

In the early months of a loan, the majority of your payment goes towards interest. As the principal reduces, more of each payment chips away at the actual debt. This is called amortisation.

Our loan calculator shows you a full amortisation schedule — a month-by-month breakdown of exactly how much of each payment goes to interest vs. principal. This helps you understand the impact of making extra repayments at any point.

The Smart Borrower's Checklist

✅ Compare interest rates across at least 3 lenders before signing
✅ Use a loan calculator to model different terms and rates
✅ Check for fees: application fees, monthly fees, and early repayment penalties
✅ Consider fortnightly repayments to reduce interest over time
✅ Factor in insurance: some loans include (optional/mandatory) payment protection insurance

Ready to run your numbers? Try the RemitIQ Loan Calculator →