1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and principal, with the interest portion decreasing and principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

• \( PMT \) — Monthly payment amount
• \( P \) — Principal loan amount (GBP)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in years × 12)

Explanation: The formula calculates the fixed monthly payment required to fully repay a loan over its term, accounting for compound interest.

3. Importance of Loan Amortization

Details: Understanding amortization helps borrowers see how much of each payment goes toward interest vs principal, plan for total loan cost, and evaluate different loan options.

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in years. The calculator will show monthly payment, total repayment, and total interest.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing, while APR includes additional fees and charges, giving a more complete cost picture.

Q2: How can I reduce total interest paid?
A: Make larger payments when possible, choose a shorter loan term, or refinance at a lower rate when available.

Q3: Are UK mortgage calculations different?
A: Most UK mortgages use monthly compounding like this calculator, but some may have different payment frequencies or compounding periods.

Q4: What happens if I make extra payments?
A: Extra payments reduce principal faster, decreasing total interest and potentially shortening the loan term.

Q5: Does this work for car loans and personal loans?
A: Yes, this calculator works for any fixed-rate installment loan with monthly payments.