1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest components. This formula is essential for understanding the true cost of borrowing.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment (GBP)
• \( P \) — Loan principal amount (GBP)
• \( r \) — Annual interest rate (decimal)
• \( t \) — Loan term in years

Explanation: The formula accounts for compound interest and calculates the fixed payment needed to fully amortize the loan over the specified term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting, comparing loan offers, and making informed financial decisions about borrowing.

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: Does this calculator include additional fees?
A: No, this calculation only includes principal and interest. Additional fees like origination fees or insurance should be considered separately.

Q2: How does the interest rate affect my payment?
A: Higher interest rates result in higher monthly payments. Even a small rate difference can significantly impact your total repayment amount.

Q3: What's the difference between fixed and variable rates?
A: This calculator assumes a fixed interest rate. Variable rates can change over time, making future payments unpredictable.

Q4: Can I calculate extra payments with this tool?
A: This calculator shows the standard payment. For extra payments, you would need a more advanced amortization calculator.

Q5: How accurate is this calculation?
A: This provides a standard calculation that most lenders use for fixed-rate loans. Actual payments may vary slightly due to rounding methods.