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. This is the standard formula used for 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
• \( PMT \) — Fixed monthly payment amount

Explanation: The formula accounts for compound interest over the loan term, calculating what fixed payment would exactly pay off the loan with interest by the end of the term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. The calculator shows the true cost of borrowing by including total interest paid.

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate (APR), and loan term in months. For the most accurate results, use the APR provided by lenders.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good interest rate for UK personal loans?
A: As of 2024, rates under 5% APR are excellent for borrowers with good credit. Rates vary based on credit score and loan term.

Q2: 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.

Q3: Are there fees not included in this calculation?
A: Some loans have arrangement fees or early repayment charges. Always check the loan agreement for all costs.

Q4: Can I use this for secured loans?
A: The formula works for any fixed-rate loan, but secured loans may have different fee structures not accounted for here.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Variable-rate loans would require more complex calculations.