What your loan repayment really includes
The monthly payment matters, but comparing loans also means understanding the rate method, fees and total amount repaid.
By CashOrbits · Published 3 November 2026 · Reviewed 3 November 2026
Read the rate description
A reducing-balance rate applies interest to the remaining principal. A flat rate uses a different method and cannot be entered into a reducing-balance formula as though it were the same rate. Ask the lender for an amortisation schedule and a clear fee-inclusive cost disclosure.
Understand the calculation
For a fixed reducing-balance loan, the monthly rate is the nominal annual percentage divided by 1,200. The payment formula spreads principal and monthly interest over the selected number of payments. At zero interest, divide principal by the number of payments.
Work through a simple example
Borrowing 12,000 over 12 months at 0% interest gives a payment of 1,000 before fees. An upfront fee of 300 brings the total cost above principal to 300 even though the interest rate is zero. If that fee is financed, the repayment principal changes.
Compare offers on the same basis
Use the same loan amount and term. Check compulsory insurance, late charges and settlement conditions separately. The calculator assumes a fixed rate and monthly payments in arrears; a lender using daily interest or a first irregular period may quote a different schedule.
Sources & further reading
Official consumer or small-business resource. The worked examples are CashOrbits illustrations, not market quotes. Source reviewed 3 November 2026.
Use this as general education. Your contract, jurisdiction and circumstances may require additional advice. Read our editorial policy.