1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest. This is the standard calculation used for mortgages and personal loans in the UK.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount (GBP)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months (term in years × 12)

Explanation: The formula accounts for compound interest over the life of the loan, with each payment covering both interest and principal reduction.

3. Importance of Amortization Schedule

Details: The amortization schedule shows how each payment is split between principal and interest, and how the loan balance decreases over time. This helps borrowers understand the true cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in GBP, annual interest rate as a percentage (not decimal), and loan term in years. The calculator will show the monthly payment, total interest, and full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does this differ from simple interest loans?
A: Most UK loans use compound interest (amortizing). Simple interest loans are rare and calculate interest differently.

Q2: Are there any fees not included in this calculation?
A: This calculates principal and interest only. Some UK loans may have arrangement fees, early repayment charges, or other costs.

Q3: How can I pay less interest overall?
A: Choose a shorter term or make overpayments when possible (check your loan terms for overpayment allowances).

Q4: Why does the interest portion decrease over time?
A: As you pay down principal, the interest is calculated on a smaller remaining balance each month.

Q5: Is this calculator specific to UK loans?
A: Yes, it uses GBP currency and follows standard UK lending practices for amortizing loans.