1. What is the Personal Loan Payment Formula?

The personal loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term. It's used by UK lenders to determine repayment amounts for personal loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (GBP)
• \( r \) — Monthly interest rate (annual rate divided by 12)
• \( n \) — Number of monthly payments
• \( PMT \) — Monthly payment amount (GBP)

Explanation: The formula accounts for compound interest over the loan term, calculating a fixed payment that covers both principal and interest.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It shows the true cost of borrowing when comparing different interest rates and terms.

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 months (e.g., 60 for 5 years). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a typical personal loan term in the UK?
A: Most UK personal loans have terms between 1-7 years (12-84 months), with 3-5 years being most common.

Q2: What interest rates can I expect?
A: Rates vary by credit score, but typically range from 3% (excellent credit) to 30% (poor credit) as of 2023.

Q3: Are there fees not included in this calculation?
A: Some UK lenders charge arrangement fees (typically 0%-2% of loan amount) which would increase the total cost.

Q4: Can I pay off my loan early?
A: Most UK lenders allow early repayment but may charge an early settlement fee (typically 1-2 months' interest).

Q5: How does this compare to mortgage calculations?
A: The formula is similar, but mortgages often have different fee structures and may offer fixed vs. variable rates.