1. What is the Loan Repayment Formula?

The loan repayment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest. This is known as the amortizing loan formula.

2. How Does the Calculator Work?

The calculator uses the standard loan repayment formula:

Where:

• \( P \) — Principal loan amount (£)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Loan term in months

Explanation: The formula calculates the fixed payment that pays off the loan exactly over the term, with each payment comprising both interest and principal components.

3. Importance of Loan Repayment Calculation

Details: Understanding your monthly repayment helps with budgeting and financial planning. It allows you to compare different loan options and choose terms that fit your financial situation.

4. Using the Calculator

Tips: Enter the loan amount in pounds, annual interest rate as a percentage, and loan term in months. 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 (Annual Percentage Rate) includes fees and other loan costs, giving a more complete cost picture.

Q2: How does loan term affect repayments?
A: Longer terms mean lower monthly payments but more total interest paid over the life of the loan.

Q3: Can I pay off my loan early?
A: Most loans allow early repayment, but some may charge early repayment fees - check your loan agreement.

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

Q5: Are there different types of loans?
A: Yes, common types include fixed-rate (interest rate stays the same) and variable-rate (interest rate can change) loans.