Loan Amortization Calculator

Understanding Business Loan Amortisation in Australia

An amortisation schedule breaks down every repayment into its interest and principal components over the full life of the loan. In the early periods, the majority of each payment goes toward interest - because interest is calculated on the full outstanding balance. As the principal reduces, less interest accrues each period and more of each payment chips away at the balance. This front-loading of interest is why making extra repayments in the first year or two of a loan has a disproportionately large effect on total interest paid and the loan's payoff date.

Australian businesses access credit through several structures - term loans, commercial bills, equipment finance (chattel mortgage or finance lease), and unsecured business loans. Each has different amortisation characteristics. A standard term loan amortises fully over the loan term. A commercial bill or balloon loan may have a large residual payment at the end, meaning repayments are lower during the term but there is a significant lump sum due at maturity. Understanding your amortisation schedule upfront helps you budget for repayments and avoid surprises at refinance time.

Interest on business loans is generally tax-deductible in Australia where the borrowed funds are used for income-producing purposes. The deduction is for the interest component of each repayment - the principal portion is not deductible. For loans used partly for business and partly for private purposes, only the business-use proportion of interest is deductible. Always confirm deductibility and the correct treatment of establishment fees with your accountant before lodging.

Worked example: equipment finance for a CNC machine

A Melbourne metal fabricator finances a AU$185,000 CNC milling machine over 5 years at 7.2% pa with monthly repayments (chattel mortgage, no residual):

Monthly repayment: AU$3,689. Total interest over 5 years: AU$38,362. In year one, 29% of repayments go to interest. By year five, only 5% does. If the fabricator switches to fortnightly repayments (AU$1,702 per fortnight, 26 per year), total interest drops to AU$36,890 - saving AU$1,472 and paying off 2 months early. The interest component is deductible as a business expense; the principal is not. Use the business loan comparison calculator to compare this quote against alternative offers before signing.

How to use this calculator

1. Enter the loan amount (principal) in AU$.
2. Enter the annual interest rate - use the rate from your loan contract, not the comparison rate.
3. Set the loan term in years and your repayment frequency (monthly, fortnightly, or weekly).
4. Review the repayment amount, total interest payable, and the full amortisation schedule.

Frequently asked questions

What is the difference between the interest rate and the comparison rate?

The interest rate is used to calculate your periodic interest charge. The comparison rate includes fees (such as establishment fees and monthly account-keeping fees) expressed as an annual percentage - it gives a better picture of the true cost of the loan. For amortisation calculations, use the stated interest rate. To compare loan options, use the comparison rate. Under the National Consumer Credit Protection Act, lenders must disclose both for consumer credit products.

Does paying fortnightly instead of monthly reduce total interest?

Yes - but only if you are making 26 fortnightly payments per year rather than simply halving your monthly payment. Because there are 26 fortnights in a year (vs 12 months), you effectively make one extra monthly payment per year. This reduces the principal faster and can shave months off the loan term and reduce total interest meaningfully on a 5–7 year business loan.

How do extra repayments affect the amortisation schedule?

Every dollar of extra principal repayment reduces the balance that interest is calculated on in all future periods. Because interest is front-loaded, an extra AU$5,000 repayment in year one reduces total interest by more than the same repayment in year four. Check your loan contract for any prepayment restrictions or break costs before making large extra repayments - these are common on fixed-rate business loans.

Should I choose a fixed or variable rate for a business loan?

Fixed rates give predictable repayments for cash flow planning but typically start higher than variable rates. Variable rates may be lower initially but can rise with the RBA cash rate. Many businesses choose a split (e.g., 60% fixed, 40% variable) to balance certainty with flexibility. For equipment finance, fixed rates are more common since the asset depreciates on a known schedule.

Business loans vs home loans

Business loans and home loans differ in rate, term, and tax treatment. Secured business loans typically carry rates of 6-9% pa, while unsecured business loans range from 9-15%. Home loans in 2025-26 sit around 5.5-6.5% - lower because the lender holds residential property as security with a more liquid resale market. You can model the difference using our compound interest calculator to see how rates affect total cost over time.

The key tax distinction: interest on a business loan used for income-producing purposes is tax-deductible. Home loan interest is not deductible unless the property is an investment property generating rental income. This means the effective after-tax cost of a business loan is lower than the headline rate suggests - a 7.5% business loan for a company on a 25% tax rate has an effective cost of around 5.6% after the deduction.

Business loans also tend to have shorter terms - typically 5-15 years for term loans and 3-7 years for equipment finance - compared with 25-30 years for a standard home loan. Shorter terms mean higher periodic repayments but significantly less total interest paid. For more detail on Australian lending requirements, refer to the MoneySmart guides published by ASIC.

When comparing offers, always look at the total cost of the loan (principal + total interest + fees) rather than the interest rate alone. A lower rate with a higher establishment fee and monthly account-keeping charges can cost more over the full term than a marginally higher rate with no ongoing fees. Run both scenarios through the calculator above to see the difference in dollar terms.

Worked example: $500,000 commercial equipment loan

A Sydney-based wholesale distributor takes out a AU$500,000 secured equipment loan at 7.5% pa over 10 years with monthly repayments:

• Monthly repayment: ~AU$5,930
• Total interest over 10 years: ~AU$211,600
• Total amount repaid: ~AU$711,600

The extra AU$500 per month totals AU$6,000 per year in additional repayments - but the interest saving of AU$34,600 means every dollar of extra repayment returns roughly AU$1.40 in avoided interest over the life of the loan. Use the break-even calculator to work out how quickly the financed equipment needs to generate revenue to cover the loan cost.

At the 25% company tax rate, the AU$211,600 in interest on the standard repayment scenario generates approximately AU$52,900 in tax deductions over the loan term - reducing the effective interest cost to around AU$158,700. Factor this into your cash flow modelling when deciding between purchasing equipment outright versus financing it.

Managing repayments across multiple loans and supplier invoices becomes complex as a business scales. Automating your accounts payable process ensures nothing falls through the cracks and frees up time for cash flow planning rather than manual data entry.