1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. It accounts for the principal amount, interest rate, and loan duration to determine regular payments.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

Explanation: The formula calculates the fixed payment needed to pay off the loan with interest by the end of the term, with each payment covering both principal and interest.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It shows the true cost of borrowing by including both principal and interest components.

4. Using the Calculator

Tips: Enter the principal amount in GBP, annual interest rate as a percentage, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing, while APR includes additional fees to show the total cost of the loan.

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 UK mortgage calculations different?
A: Most UK mortgages use this standard amortization formula, though some may have interest-only periods.

Q4: What if I make extra payments?
A: Additional payments reduce principal faster, potentially saving interest and shortening the loan term.

Q5: How accurate is this calculator?
A: It provides standard amortization results, but actual loan terms may include additional fees or specific conditions.