A loan is just a negative bank balance. Interest is a fee that the bank charges and therefore the profit margin of the bank and the savers at the bank. When you pay the loan back you just end up with a $0 balance and interest has bounced back and forth between you and the bank.

Money is destroyed in the sense that nobody has a positive balance at the end of the loan but when you add all negative and positive account balances together you end up with $0 so money doesn't really "exist" in a way that can be "destroyed".