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 by UK lenders for fixed-rate loans.

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

Explanation: The formula accounts for compound interest over the life of the loan, spreading payments equally over the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing different loan options. It shows the true cost of borrowing when interest is included.

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate (without % sign), and loan term in years. The calculator will show your monthly payment, total repayment, and total interest.

5. Frequently Asked Questions (FAQ)

Q1: Does this work for mortgages in the UK?
A: Yes, this formula is commonly used for fixed-rate mortgages in the UK.

Q2: Are there other costs not included?
A: This calculates principal and interest only. Additional costs like fees, insurance, or variable rates aren't included.

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 interest.

Q4: What's a typical UK mortgage rate?
A: Rates vary, but typically range from 2% to 6% depending on economic conditions and your creditworthiness.

Q5: Can I calculate overpayments?
A: This calculator shows standard payments. For overpayment calculations, you'd need a more advanced amortization calculator.