1. What is the Monthly Payment Formula?

The monthly payment formula calculates fixed payments for amortizing loans where payments are equal throughout the term. It's used for personal loans, car loans, and mortgages.

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)
• \( n \) — Total number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount (GBP)

Explanation: The formula accounts for both principal repayment and interest charges, with more interest paid early in the loan term.

3. Importance of Loan Calculation

Details: Understanding monthly payments helps borrowers budget effectively and compare loan offers to find the cheapest UK personal loans.

4. Using the Calculator

Tips: Enter principal in GBP, annual interest rate as percentage (e.g., 5.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What makes a personal loan "cheapest"?
A: The cheapest loans have the lowest APR (Annual Percentage Rate) which includes both interest and fees.

Q2: Are there other costs besides the monthly payment?
A: Some UK loans have arrangement fees, early repayment charges, or late payment fees.

Q3: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms reduce monthly payments but increase total cost.

Q4: What's a typical UK personal loan rate?
A: Rates vary (3%-30% APR) based on credit score, amount, and term. Best rates typically go to borrowers with excellent credit.

Q5: Can I pay off my loan early?
A: Most UK lenders allow early repayment but may charge up to 1-2 months' interest as an early settlement fee.