1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including both principal and interest. It's particularly useful for comparing low-cost personal loan options in the UK.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

Explanation: The formula accounts for the compounding effect of interest over the loan term, spreading payments evenly across all months.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps budget effectively and compare loan offers. The calculation shows the true cost of borrowing, including interest charges.

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate (APR), and loan term in years. The calculator will show your monthly payment, total repayment, and total interest.

5. Frequently Asked Questions (FAQ)

Q1: What makes a loan "low-cost" in the UK?
A: Low-cost personal loans typically have APRs below 10% and are offered to borrowers with good credit histories.

Q2: Are there any fees not included in this calculation?
A: Some lenders charge arrangement fees or early repayment charges. Always check the loan terms.

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 get a loan with bad credit?
A: Bad credit loans typically have much higher interest rates. This calculator is designed for low-cost loans available to good-credit borrowers.

Q5: Is the interest rate fixed for the whole term?
A: Most UK personal loans have fixed rates, but always confirm with your lender.