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Money & Finance · Lesson 14 of 14

Borrowing: Principal, Interest and Total Repayment

When you borrow, you repay the principal plus interest. Total repayment minus the amount borrowed is the cost of borrowing.

What you will learn

  • Find interest and total repayment on a loan.
  • Work out a monthly payment.
  • Compare the cost of two loans.

Before you start: you should be able to calculate simple interest. See Interest and Percentages.

The idea

A loan is money you borrow and must pay back with extra. The amount borrowed is the principal. The extra is the interest. The rates here are examples for practice. Real loans vary and may use compound interest.

Sorted into groups: Part, AmountPart: Principal, Interest (10%, 2 yrs), Total repayment. Amount: £500, £100, £600.PartPrincipalInterest (10%, 2 yrs)Total repaymentAmount£500£100£600
A £500 loan at 10% simple interest for 2 years costs £100 in interest, so £600 is repaid.

Monthly payments

Divide the total repayment by the number of months. £600 over 1212 months is £50 a month. Over a longer time the monthly payment is smaller but the total paid is usually larger.

Bar chart: Borrowed 1000, Repaid 1260Bar chart: Borrowed 1000, Repaid 1260. The scale goes from 0 to 1400 in steps of 200.0200400600800100012001400BorrowedRepaidPartPounds
Borrowing £1,000 and repaying £105 a month for 12 months means paying back £1,260, which is £260 more.

Comparing loans

Compare the total repayment for the same amount borrowed. A lower total means a cheaper loan.

Worked examples

Example 1: Interest

£500 at 10%10\% simple interest for 22 years.

  1. 500×0.10×2=100500 \times 0.10 \times 2 = 100.

Answer: £100 interest

Example 2: Total

Add the principal.

  1. 500+100=600500 + 100 = 600.

Answer: £600

Example 3: Monthly

Repay £600 over 1212 months.

  1. 600÷12=50600 \div 12 = 50.

Answer: £50 a month

Tip: ask: how much will I pay back in total? A low monthly payment can hide a high total.

Why it matters

Borrowing affects everyone, from student loans to credit cards. Knowing principal, interest and total repayment helps you see the true cost. This lesson is for learning maths only and is not financial advice.

Practice

Your turn. Type or choose an answer, then press Check. Getting one wrong is fine, that is what practice is for. You can try as many times as you like.

Question 1 of 8

Borrow £500 at 10%10\% simple interest a year for 22 years. How many pounds of interest?

Question 2 of 8

Using the same loan, what is the total repayment in pounds?

Question 3 of 8

£600 is repaid in equal payments over 1212 months. How many pounds each month?

Question 4 of 8

Borrow £1,000 at 8%8\% simple interest for 11 year. What is the total repayment in pounds?

Question 5 of 8

You repay £105 a month for 1212 months on a £1,000 loan. How many pounds is the total repaid?

Question 6 of 8

Using the same loan, how many pounds is the cost of borrowing?

Question 7 of 8

Borrow £2,000 at 5%5\% simple interest for 33 years. How many pounds of interest?

Question 8 of 8

Loan A costs £1,150 to repay and loan B costs £1,120 for the same amount borrowed. Which is cheaper?

Choose one answer