When a person takes out a loan from a bank or a credit union, they repay more money than they received in their account. They have to include interest rates and other additional fees. Besides, the time frame for repaying also affects the total loan amount.
It can be challenging for the borrower to come up with a specific figure for their monthly loan payments. Even though an individual may be a guru in math, they need the help of a loan calculator. Besides, there are different types of loan calculators depending on loan type. This makes it easier for borrowers when repay their online credit.
So, what is a loan calculator, and how do people use it?
What is a Loan Calculator?
It can be an online platform or an app used by borrowers to calculate common loan types such as student loans, personal loans, mortgages, or auto loans. With the calculator, an individual can tell their monthly payments, total interest, and the number of payments they need to make to cover the loan.
Loan calculators come in different forms because there are also various loan types. If a borrower takes a personal loan, they will use a personal loan calculator to do their math.
What are the Basic Terms of a Loan?
Before a borrower uses a calculator to determine the amount of loan they qualify for, it is crucial to understand the terms around a loan.
First, most loans, if not all, come with an interest rate which is the percentage that the lender or the bank benefits from the credit. It is usually expressed as an annual percentage rate (APR) that includes a borrower’s interest and upfront costs like origination fees. In most cases, an individual’s credit score history affects their interest rates. Hence, the higher the credit score, the lower the interest rate and vice versa.
The principal amount is also an essential factor in a loan. It shows the amount a borrower will receive from a bank or the lender to their account.
Loans also have additional costs such as late fees and origination fees. Finally, a loan term shows the duration a borrower will take to repay the loan. The term affects loan structure in different ways. For example, the longer it is, the more the interest over time, but it reduces monthly payments.
What are the Different Loan Types?
Borrowers calculate their loans depending on the loan type they took. Besides, it affects the interest rate and other factors in the loan.
An individual can take an interest-only loan which means that they are responsible for paying the loan interest within the specified time. Their principal amount remains constant during this period. However, once they have completed paying the loan interest, they will need to pay back the principal amount. It is easy to calculate this loan type with a loan calculator.
The second loan type is the amortizing loan, where a person pays back the principal amount and the interest monthly.
How do Borrowers Use Loan Calculators?
When a person wants to borrow online credit, they can use a loan calculator to see the amount they qualify for. Also, once they get the loan, they can use it to find their interest rate and the principal amount they need to pay.
However, different loans come with differing requirements, making their calculations vary. Therefore, a borrower can’t use a personal loan calculator for a student loan.
For a personal loan, an individual needs a personal loan calculator. This calculator takes the borrower’s principal balance, interest rate, and loan term to provide the total monthly payment due each month.
When an individual has a student loan, the best calculator is the student loan calculator. It helps them determine the amount they need to pay each month when they provide the loan amount and the interest rate. Besides, it can help them know how an additional monthly payment or one-time payment can impact their loan repayment structure.
If a person wants to buy a car with a loan, they can use an auto loan calculator. It will ask them to provide the amount they wish to borrow, the interest rate, and the repayment term. Besides, one needs to specify if they want a new or a used car. An auto loan may have shorter terms than a personal loan because it comes with security.
Lastly, a borrower can use a home equity calculator for a home equity loan. The calculator requires the individual to enter their address, home estimated value, estimated mortgage balance, and credit score. As a result, they will find how much they can borrow.
A loan calculator is an important asset when one wants to take an online credit. It helps them find how much they can borrow, the interest rate, and the loan term. However, the loan type influences the type of calculator a borrower will use because these loans come with different terms. With the right loan calculator, a person will find the correct figures for their loan.