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Personal Loan Calculator
A loan calculator can be really helpful in pinning down the right offer and plan your finances better before you apply.
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A loan calculator can help you understand exactly how much interest you will be paying on the principal amount and for how long. It gives you a clear idea of what you are getting yourself into.
There can be several instances in life when you may find yourself in need of extra cash. One of the best ways to arrange for funds is by borrowing a loan. Different types of loans are available for various end uses, so regardless of your need, you will find a suitable option.
But before you borrow, you should know the total cost of borrowing and check whether you can afford to pay off the debt. Using a loan calculator is a good idea to pin down the right offer and plan your finances better.
A loan refers to a sum of money an individual or a business borrows from an organisation, usually banks, credit unions, or financial institutions. Borrowing a loan can be for meeting a variety of planned or unplanned expenses.
Certain types of loans, such as personal loans, can be used for any purpose that the borrower deems fit. However, loans such as, or , targeted toward borrowers with poor credit history, are meant for a specific purpose, such as buying a car.
The individual or entity borrowing money is the borrower, and the institution lending the money is the lender. The borrower needs to repay the loan and the accrued interest within a specified period.
There are also other types of loans available for your different needs and financial situations like, , and .
A loan calculator is a calculator that helps you find out what to expect once you borrow a loan. Using a monthly loan repayment calculator, you can find out how much you need to pay every month to pay off the loan. You can also find out how long it will take for you to pay off the entire loan amount and become debt-free.
A bank loan calculator can also provide you with information about:
- What effect do different interest rates have on your repayment?
- What is the interest amount you need to pay for the loan term?
- What is the total cost of borrowing the loan?
Here’s how to use a loan repayment calculator:
- Enter the amount you are planning to borrow and add the APR.
- Enter the term of the loan, which is the time period for which you intend to borrow the loan.
- Once you key in the data, the loan calculator will show you how much your monthly payment will be.
- The calculator also shows you the amortisation schedule so that you know the estimated payoff date of your loan.
- Some loan payoff calculators allow you to add additional or extra payments you can make to pay off the debt sooner. You have an option to indicate the amount of extra payment and the frequency at which you will make them -- one-time, monthly, or yearly.
Here are some advantages of relying on a loan calculator in Australia:
Avoid manual calculation
Manually calculating loan EMI or the last pay-off date can be incredibly time-consuming. Using a loan payment calculator provides results within seconds.
Loan calculators are incredibly user-friendly. To use it, you don’t have to be a tech whiz or be well-versed with mathematical formulae. All you need to do is enter some information to know your monthly installment obligations.
No matter how meticulous you are, it is impossible to avoid making errors during manual calculations. Unfortunately, even a minor error can greatly impact the final outcome. A loan calculator eliminates the chances of any errors -- as long as you enter the correct figures, your results will always be accurate.
Some important factors to consider when you are weighing your options for loan repayment:
Annual Percentage Rate (APR)
or APR reflects the annual interest rate of the loan you want to borrow. It considers the monthly instalment amount and tells you how much percentage of the principal you have to pay every year. Loans borrowed from banks can either have a fixed APR or a variable APR.
With a fixed APR, you need to pay the same interest over the entire life of the loan. A variable APR offers no guarantee on the interest rate, which may vary at any time during the loan term. Having a high credit score improves your chances of getting a loan at a low APR.
Your ability to repay
The repayment installment depends on the tenure of the loan. The longer the tenure, the smaller the installments. Before signing up for an offer, use a repayments calculator to work out how much you need to pay. Move forward with your applications only if you are sure that you can pay the requisite amount every month. Even a single payment default can bring down your score and pose difficulties for future borrowings.
Nature of the loan - secured or unsecured
Depending on the type of loan, the lender may ask you for security. Certain loans may be secured in nature by default, such as a home loan or a car loan. Furnishing security may become even more important for the lender if you are a borrower with poor credit history. Bear in mind that unsecured loans tend to be more expensive than secured loans.
Whether prepayment is allowed
Having the ability to prepay ahead of the scheduled payment dates makes it easier to become debt-free sooner than expected. Check whether the lending terms permit prepayment in full or part. Ideally, you should be able to prepay without being penalised for it.
It is not unusual for lenders to levy processing fees or other charges for sanctioning the loan application. Plus, there can be penalties for any default in addition to the interest. These can quickly add up and increase the total cost of your repayment.
Plan your expenses better
Loan calculators can help you to manage your finances better by providing you with all the relevant information about repayment instalment and interest payouts even before you apply for one. This can help you to plan your expenses better.
Suppose you want to borrow a home loan and can only afford a monthly instalment of $5,000. When you know the total amount of loan you want to borrow and the interest rate you can afford to pay, you can use the home loan repayment calculator to find out what should be the tenure of the loan so you can pay it off comfortably.
Compare various offers
You can also use a personal loans calculator to compare different loan offers. You can compare various tenures, amounts, and interest rates payable to find out the offer that’s best suited to your needs.
Based on whether a security is offered, loans can be classified into main types: secured or unsecured.
Those loans for which the borrower has to offer collateral are known as secured loans. Examples include car loans or home loans, where the car or home itself is pledged as security. For other types of secured loans, you can offer your personal property to borrow the funds. In case of, the lender can seize the asset and sell it off to recover the amount.
Since the collateral squares off the lending risk, the interest rate of such loans tends to be lower than unsecured loans. Moreover, the higher the value of the secured assets, the bigger the loan ticket size.
With unsecured loans, you don’t have to pledge any assets to borrow the funds. Examples include student loans and credit cards. In case of payment default, the lender has to explore legal options to recover the money. The interest rate of such loans tends to be higher since there is nothing to minimise the risk of lending. Take a look atto understand the difference.
can be used for several purposes including planning a vacation, paying medical or other bills, paying wedding expenses, or renovating the house. Personal loans are usually unsecured loans.
Auto loans orare used for purchasing a vehicle, and the vehicle is also furnished as a security for the loan. In case of any payment default, the lender can seize the vehicle and sell it off to recover the outstanding debt.
Student loans are a special type of loan meant for financing education at a college or university. These loans are unsecured.
Mortgage loans or home loans are meant for financing the purchase of a house. These are secured as the house serves as collateral for the loan. The lender can take possession of the property in case of a payment default. You can also, if needed.
Borrowing personal loans or home loans doesn’t automatically impact your credit score.
Your credit score is calculated by thescoring model based on information in your credit report. Your score can go down when you make multiple loan applications within a short period.
This is because lenders run a credit check every time you apply for a credit product and the only exception to this rule is borrowing no credit check loans. Credit reporting agencies consider these checks as hard inquiries and they show up in your credit report. Too many hard inquiries portray you as an irresponsible and risky borrower.
A poor repayment record also hurts your credit score as lenders report repayment data to credit reporting agencies. There is also usually aapproval applicable for every lender.
The interest you pay depends on the type of loan you borrow and several other factors such as your income, age, credit history, credit score, repayment track record, and banking relationship.
A higher credit score and good credit history make it easier to negotiate a better interest rate. Similarly, if you are an existing customer of the lender you want to borrow a loan from, you have a better chance of getting a favourable interest rate.
Additionally, a lender’s internal policies, the government's monetary policy, inflation, and demand and supply of money in the economy are some external factors that impact interest rates.
The monthly installment towards your mortgage depends on the amount of loan borrowed, the interest charged, and the tenure of the borrowing. To calculate mortgage repayments, you can divide the total amount borrowed plus the accrued interest by the loan tenure.
Alternatively, you can use a mortgage repayment calculator. Using a calculator saves you from the hassle of manually working different installments for different interest rates and terms of the loan. Amortisation calculators are also helpful when you want to compare different loan offers. Moreover, a calculator also minimises the chances of any mistakes that may occur when you manually work out the mortgage repayment.
You sign an agreement when you borrow a loan from a bank or financial institution. This creates a legal obligation for you to repay the loan and interest within the time specified by the lender.
The interest chargeable on the loan, the frequency of payment, and the consequences of non-payment or delayed repayment are decided by the lender and specified in your loan agreement. If you are borrowing a secured loan, the agreement also specifies what happens to the secured asset if you fail to repay the loan as per the agreed terms.
Borrowing a loan is an option when you urgently need a sizable amount of money but do not have any other means to access the funds. Loans can help you tide over various financial emergencies or expenses, including purchasing a car, planning a vacation, or funding a college education.
Loans can also be helpful when you are ineligible to qualify for a credit card due to poor credit scores. In such cases, you can approach a lender and borrow personal loans for bad credit.
Don’t sign up for the first offer that comes your way. Make sure to use an online loan calculator and work out the details. Borrowing a loan and defaulting on payments can adversely impact your credit history and bring down your score, making you a less desirable applicant for future lenders.
With ClearScore, you can get a free credit report andto explore loan offers and compare loans from different lenders. Take a look.
Stephen Smyth has worked in financial services since 1999, specialising in consumer credit. He has worked in banks and consumer credit companies in the United Kingdom, France, Spain, India, South African and has lived in Australia since 2013. He believes that people around the world can benefit from services liked ClearScore to make finances clearer, easier to understand and to find better deals to save money.