How Do You Use A Loan Calculator?
There are a great deal of websites that offer you the chance of using a loan calculator. They may typically act as a guide to:
· the amount you may be able to borrow;
· the repayments, for example how much they are each month; and
· what the loan may cost in total.
Although you may be perfectly capable of working out these sums in your head or on paper, loan calculators may offer a quick and simple solution to this. They usually also allow you to compare a number of different lenders’ products and lending policies in a short space of time.
The exact format of these calculators may be quite different depending on the website that they are on, but they may typically be laid out as online forms that deliver a result when correctly filled in.
How much can you borrow?
Some lenders could need details of everything that you spend you money on here, others may be content with just knowing how much you earn.
When you come to fill in the online fields that ask how much you spend on bills, mortgage, food and entertainment, the exercise of providing the information may act as a useful budgeting activity in itself. Perhaps you will generally be surprised at how much you spend when you actually see the amounts written down!
How much will it cost you?
Whilst long term planning may be important, working out how much a loan may cost on a month by month basis may be equally as relevant. Accordingly, a loan repayment calculator can generally be a useful tool to help you ascertain whether you can really afford a loan.
The total cost of a loan
If the loan repayment calculator does not show the total cost of the borrowing, you may need to find this out. After all, if the monthly repayments for a long term loan are not much less than what you’d pay for shorter term borrowing, then potentially, if the figures all stack up, you could generally repay the loan sooner, and avoid paying so much interest.
What else is there to consider?
Loan calculators may typically work using the lender’s standard offer interest rates. However, the rate that could actually be offered to you may be different to the one quoted on the publicity material, depending on:
- your credit rating (as if the bank perceives you as a more “risky” borrower you may bear a higher interest rate);
- whether the Bank of England’s interest rate may have changed since the rate was quoted; or
- whether any new rates are available.
Do remember that when you take out a quote based on a loan calculator this is different from making a formal application for a loan. So whilst the calculator may act as a guide, you may not find out the rate that can typically apply to you until you contact the lender to start the application.