1. What is the Personal Loan Payment Formula?

The personal loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including interest. It's commonly used for unsecured personal loans in the UK.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment amount (£)
• \( P \) — Principal loan amount (£)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that will pay off both principal and interest by the end of the term.

3. Importance of Loan Calculation

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

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate (APR), and loan term in years. The calculator will show your monthly payment, total repayment amount, and total interest.

5. Frequently Asked Questions (FAQ)

Q1: Does this include UK loan fees?
A: No, this calculates the principal and interest only. Some UK loans may have arrangement fees that aren't included here.

Q2: What's a typical UK personal loan term?
A: Most UK personal loans have terms between 1-7 years, with 3-5 years being most common.

Q3: Are interest rates fixed or variable?
A: This calculator assumes a fixed rate. For variable rate loans, payments may change over time.

Q4: How does credit score affect my rate?
A: In the UK, better credit scores typically qualify for lower interest rates. Rates can vary significantly based on your creditworthiness.

Q5: Can I overpay my UK personal loan?
A: Many UK lenders allow overpayments, but some may charge early repayment fees, especially in the first few years.