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 both principal and interest components.

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)
• \( n \) — Number of monthly payments (term in years × 12)
• \( PMT \) — Fixed monthly payment amount (GBP)

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

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing different loan options. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: 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 interest.

Q2: What's included in the monthly payment?
A: This calculates principal and interest only. Your actual payment may include insurance, taxes, or fees depending on the loan type.

Q3: How accurate is this calculator?
A: It provides standard fixed-rate loan calculations. For variable-rate loans, results would change as rates adjust.

Q4: Can I calculate extra payments?
A: This calculator shows standard payments only. Extra payments would reduce principal faster and shorten the loan term.

Q5: Does this work for mortgages?
A: Yes, the same formula applies to mortgages, though mortgages often have additional costs included in payments.