Interest charged vs interest paid: what's the

2 min read

Charged = accruedOn the balance

Paid = handed overIn your payments

Can differTiming and accrual

Matters for accountsAnd settlement

Interest charged is the interest that has accrued on your outstanding balance over a period — the cost the loan has generated. Interest paid is the portion of your actual payments that went to interest. On a standard amortising loan running to schedule these largely align over time, but at any given moment, and in your accounts, the distinction matters — accrual and payment do not always fall in the same period.

Why the gap arises

Interest accrues continuously (often daily) but is paid periodically, so at a month-end there can be accrued interest charged but not yet paid. If you settle early, the figure that matters is interest charged to the settlement date, which may differ from what you would have paid on schedule. For accounts, the interest expense is the interest charged for the period, regardless of exactly when it was paid. See recording the loan.

Where it shows up

The distinction surfaces in three places: your amortisation schedule, which shows interest charged per period; your settlement figure, which reflects interest charged to the exact date; and your accounts, where the interest expense is the interest charged for the period. Understanding which figure you are looking at avoids confusion when reconciling. See what's deductible.

For your figures, pull the interest breakdown from the repayment schedule and confirm the accounting treatment with your accountant.

Frequently asked questions

Which figure is tax-deductible — interest charged or paid?

Generally the interest charged for the accounting period is the expense recognised and relieved, reflecting the cost the loan generated in that period, rather than simply what was physically paid within it. The two are usually close on a loan running to schedule, but the timing distinction can matter at period-ends. Your accountant will apply the correct treatment based on the rules and your circumstances.

Why is my early settlement interest different from my schedule?

Because a settlement reflects interest charged to the exact settlement date, calculated to the day, rather than the interest built into your scheduled future payments. Settling early stops interest accruing from that date, so you pay interest charged up to it — not the full future interest your remaining payments would have included. That is why the settlement figure is lower than adding up the remaining payments.