When you look at a loan, the monthly payment figure tends to stand out. It is easy to compare, and it fits neatly into a budget calculation. The important bit is that it can also hide how much a loan actually costs you overall.
How does the total amount repayable work?
Guidance from MoneyHelper's guide to borrowing money and the FCA has consistently pointed out that borrowers focusing only on monthly costs can end up paying significantly more over the life of a loan than they expected.
Key points:
- The total amount repayable is the single figure that tells you the full cost: your original borrowing plus all interest and any mandatory charges. Under FCA CONC 4.2, lenders are required to display this figure prominently in pre-contractual information so that borrowers can compare offers directly.
- Extending a loan term to reduce the monthly payment almost always increases the total amount repayable, sometimes by a meaningful amount.
- The advertised representative APR must be offered to at least 51% of accepted applicants; the rate you are actually offered may be higher, depending on your credit history and circumstances.
What does the difference in term length actually cost?
A worked example makes this concrete. On a £5,000 loan at 9.9% APR:
| Term | Monthly payment | Total interest | Total amount repayable |
|---|---|---|---|
| 3 years (36 months) | £160.92 | £794.12 | £5,794.12 |
| 5 years (60 months) | £105.90 | £1,354.00 | £6,354.00 |
Reducing the monthly payment by roughly £55 costs an additional £559.88 in interest over the life of the loan. The monthly figure looks more manageable on the longer term, but the total amount repayable tells a different story.
It is also worth noting that the 9.9% figure above is a representative APR. If your credit history means the lender offers you a higher rate, say 19.9% APR, the picture changes considerably:
| Term | Monthly payment | Total interest | Total amount repayable |
|---|---|---|---|
| 3 years at 19.9% APR | £185.27 | £1,669.72 | £6,669.72 |
| 5 years at 19.9% APR | £132.08 | £2,924.80 | £7,924.80 |
Compared with the representative rate over five years, a borrower offered 19.9% APR would pay approximately £1,571 more in total. Checking the actual rate offered, not just the headline representative APR, is a useful first step before accepting any loan.
Who is this likely to affect?
This matters to anyone considering a personal loan, but especially:
- Borrowers who are comparing loan offers based on the monthly figure alone.
- Anyone tempted to extend a repayment term to make a loan feel more affordable month to month.
- First-time borrowers who may not be familiar with how APR and total cost interact.
If the monthly payment fits your budget but the total amount repayable feels high, it can help to use a loan repayment calculator to model different term lengths side by side before deciding.
What to read next
For a fuller explanation of how loan interest and APR work, the following guides go into more depth:
- How loan interest rates work
- Personal loans: what to know before you borrow
- Early loan repayment: can you pay off a loan early?
You may also want to use the loan repayment calculator to compare total costs across different term lengths.
Sources
- FCA CONC 4.2: pre-contractual disclosure requirements, fca, basis for the total amount repayable disclosure requirement
- FCA consumer credit information: borrowing, fca, representative APR rules and consumer credit regulation
- MoneyHelper: borrowing money, moneyhelper, guidance on understanding loan costs and comparing offers