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How amortisation actually works

An amortised loan is repaid in equal instalments, but each instalment splits differently between interest and principal every month. Interest is charged on whatever balance remains at the start of the month, and whatever is left of the fixed payment after that interest goes toward reducing the principal. As the balance shrinks, the interest portion shrinks with it, so a growing share of each identical payment chips away at what is actually owed. The monthly payment itself is fixed for the whole term by a standard formula, chosen so that the balance reaches exactly zero on the final payment.

Why the early payments are mostly interest

In the first month of a long-term loan, the balance is at its highest, so the interest charge is also at its highest — often the majority of that month's payment. Only the remainder reduces the principal. Because the balance falls slowly at first, this pattern persists for years on a 25- or 30-year term: it can take a substantial fraction of the term before the principal and interest portions of a payment are roughly equal. This is normal behaviour for any amortised loan, not a sign that something is wrong.

What overpaying actually changes

An extra monthly payment is applied directly to the principal, on top of the interest and principal already due that month. That immediately lowers the balance the next month's interest is calculated on, which compounds every month afterwards. The practical effect is twofold: the loan finishes sooner than the original term, and the total interest paid over the life of the loan falls — often by more than the sum of the overpayments themselves, because of how much interest those overpayments avoid later on.

Comparing loan offers properly

A lower headline rate is not automatically the cheaper loan once term length and fees are taken into account, and a lower monthly payment is not automatically the cheaper loan either — it may simply reflect a longer term with more total interest. The figures that matter for a fair comparison are the total interest over the same term, and the total repaid, not the monthly payment in isolation. This calculator produces principal-and-interest figures only, so any arrangement fees or optional insurance still need to be added on top before two real offers can be compared like for like.