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 interest. It's used for personal loans, car loans, and other installment credit in the UK.

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 months)
• \( PMT \) — Fixed monthly payment amount

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

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps budget effectively and compare loan offers. The calculator shows total interest cost, helping identify cheaper loan options.

4. Using the Calculator

Tips: Enter loan amount in GBP, annual interest rate (typical UK personal loans range 3%-30%), and term in months (12-84 months common). All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a cheap personal loan in the UK?
A: As of 2024, rates under 5% APR are excellent, 5-10% is good, and 10-15% is average for borrowers with good credit.

Q2: How can I reduce my total interest paid?
A: Choose shorter terms (higher payments but less interest) or negotiate a lower rate. Even 0.5% makes a difference over several years.

Q3: Are there fees not included in this calculation?
A: Some UK lenders charge arrangement fees (typically 0.5-2% of loan amount) which would increase total cost.

Q4: How does UK loan interest differ from other countries?
A: UK loans typically use APR (includes fees) and compound interest monthly. This calculator assumes no additional fees.

Q5: Is this calculator accurate for all UK loans?
A: It works for standard fixed-rate personal loans. Credit cards, overdrafts, or variable-rate loans use different calculations.