£40,000 Personal Loan over 4 years: what it costs each month
What a £40,000 personal loan over 4 years costs at different rates
The rate you are offered depends on your credit score, your income and how much you borrow. The same £40,000 over 4 years can cost very different amounts, so it is worth seeing the whole range before you apply.
Moving the rate by one percentage point, from 9.9% to 10.9%, changes the monthly payment by about £17.53 and the total interest by about £842.
£40,000 over 4 years by interest rate
| APR | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 5.9% | £934.75 | £4,868 | £44,868 |
| 7.9% | £969.54 | £6,538 | £46,538 |
| 9.9% | £1,004.49 | £8,216 | £48,216 |
| 14.9% | £1,092.45 | £12,438 | £52,438 |
| 19.9% | £1,181.00 | £16,688 | £56,688 |
| 24.9% | £1,269.85 | £20,953 | £60,953 |
Fixed rate, equal monthly payments, no fees.
The formula behind the payment
The payment on a fixed-rate loan is: amount × monthly rate ÷ (1 − (1 + monthly rate)−months). For £40,000 over 48 months at 9.9% APR the monthly rate is 0.7898%, which gives £1,004.49. Multiplying by 48 months gives £48,216 repaid in total, so the cost of borrowing is £8,216.
Should you borrow £40,000 over 4 years or a different term?
A longer term lowers the monthly payment but you pay interest for longer. At 9.9% APR, repaying £40,000 over 1 year costs £3,506.92 a month and £2,083 in interest, while 7 years costs £653.29 a month and £14,877 in interest. That is £12,794 more for the lower payment.
£40,000 at 9.9% APR by term
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 1 year | £3,506.92 | £2,083 | £42,083 |
| 2 years | £1,836.16 | £4,068 | £44,068 |
| 3 years | £1,280.89 | £6,112 | £46,112 |
| 4 years | £1,004.49 | £8,216 | £48,216 |
| 5 years | £839.63 | £10,378 | £50,378 |
| 7 years | £653.29 | £14,877 | £54,877 |
Interest versus capital: where your payments go
Early payments are mostly interest. In year 1 of this £40,000 loan, £3,422 of your £12,054 goes on interest and £8,632 reduces what you owe. By the last year the split reverses, which is why paying off a loan early saves more in the early years than the later ones.
£40,000 at 9.9% APR over 4 years
| Year | Interest paid | Capital repaid | Balance left |
|---|---|---|---|
| 1 | £3,422 | £8,632 | £31,368 |
| 2 | £2,568 | £9,486 | £21,882 |
| 3 | £1,629 | £10,425 | £11,457 |
| 4 | £597 | £11,457 | £0 |
Totals for each year of the loan.
What happens if you overpay your £40,000 loan?
Paying a little extra each month cuts the balance faster, so less interest is charged. Check that your lender allows overpayments and whether there is a charge: many allow up to a set amount a year without one.
Overpaying a £40,000 loan at 9.9% APR
| Extra payment | New monthly payment | Loan cleared in | Interest saved |
|---|---|---|---|
| +£100 a month | £1,104.49 | 43 months | £913 |
| +£200 a month | £1,204.49 | 39 months | £1,640 |
| +£400 a month | £1,404.49 | 33 months | £2,723 |
Compared with the normal 4 years term. Fixed rate, no fees.
How to work out if the payment is affordable
A common check is to keep all debt repayments, including this personal loan, below about a third of your take-home pay. A £1,004.49 payment fits that guide if your monthly take-home pay is at least £3,013.
Also look at what happens if your income drops. Choose a payment you could still make for several months without borrowing again.
UK rules worth knowing before you borrow
- Use an eligibility checker first. A "soft search" shows likely offers without leaving a mark on your credit file, while a full application leaves a hard search.
- The advertised "representative APR" only has to be offered to at least half of the people who are accepted, so your own rate can be higher.
- You have a right to repay a loan early. The lender can charge a limited amount of interest for doing so, so check the early repayment terms.
- Free, impartial help with debts is available from MoneyHelper, Citizens Advice, StepChange and PayPlan.
Ways to pay less interest
- Pick the shortest term whose monthly payment you can comfortably afford. Going from 7 years to 1 year would save £12,794 on this loan.
- Improve your credit file before you apply: register on the electoral roll, correct errors and pay existing bills on time.
- Make extra payments when you can, as long as there is no penalty. Each extra payment cuts the balance that interest is charged on.
- Borrow only what you need: every extra £1,000 at 9.9% over 4 years adds about £25.11 to the monthly payment.
Sources and further reading
Questions people ask
How much is a £40,000 personal loan per month over 4 years?
How much interest will I pay on £40,000 over 4 years?
Is it cheaper to borrow £40,000 over a shorter time?
What income do I need for a £40,000 personal loan?
Does this calculator include fees?
Results are estimates for information only, not financial advice. Read the full disclaimer.