1. What is the Loan Payment Formula?

The loan payment formula calculates fixed monthly payments for an amortizing loan. It accounts for principal amount, interest rate, and loan term to determine the consistent payment amount that pays off the loan over time.

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 ÷ 12)
• \( n \) — Number of monthly payments (term in years × 12)
• \( PMT \) — Monthly payment amount

Explanation: The formula calculates the fixed payment required to fully amortize the loan over its term, accounting for both principal and interest.

3. Importance of Extra Payments

Details: Making extra payments reduces the principal faster, decreasing total interest paid and potentially shortening the loan term significantly.

4. Using the Calculator

Tips: Enter loan amount in GBP, annual interest rate as percentage, loan term in years. Optionally add extra monthly payment to see potential savings.

5. Frequently Asked Questions (FAQ)

Q1: How much can extra payments save?
A: Even small extra payments can save thousands in interest and reduce loan term by years, especially early in the loan.

Q2: What's better - higher payments or shorter term?
A: Shorter terms usually have lower rates, but if rates are equal, making extra payments gives more flexibility.

Q3: Are there penalties for extra payments?
A: Most UK personal loans allow overpayments, but check your agreement as some may have limits or fees.

Q4: How does interest rate affect payments?
A: Higher rates increase both monthly payments and total interest paid significantly over the loan term.

Q5: What's the best strategy for paying off early?
A: Make consistent extra payments early in the loan when interest costs are highest for maximum savings.