1. What is the Loan Payment Formula?

The PMT formula calculates the fixed monthly payment required to repay a loan over a specified term, including both principal and interest. It's the standard calculation used for most personal loans in the UK.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the loan term, ensuring each payment covers both interest and principal reduction.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate (APR), and loan term in months. Typical UK personal loans range from £1,000 to £25,000 with terms of 1-7 years (12-84 months).

5. Frequently Asked Questions (FAQ)

Q1: What is a typical interest rate for UK personal loans?
A: Rates vary (3%-30% APR) based on credit score, loan amount, and term. Excellent credit may get 3-7%, while poor credit may see 20-30%.

Q2: Are there fees not included in this calculation?
A: Some lenders charge arrangement fees (1-5% of loan amount) which would increase the effective interest rate.

Q3: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower 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: Is this calculator accurate for all loan types?
A: It works for fixed-rate, amortizing loans. It doesn't apply to interest-only loans, credit cards, or variable-rate products.