There is a wide variety of financial tools available that can help you make financial decisions such as determining if you can afford a personal loan. Here is a look at how to use these calculators effectively.
Before applying for a personal loan, it's imperative that you study your budget to ensure it's viable. You can use a personal loan calculator to assist you in this because it can give you a ballpark amount of what your monthly payment will be. With this, you enter in the estimated amounts of how much you want to borrow, the interest rate you'll think you'll receive and the term, which is how long you want to repay the loan. Using this information, the calculator will determine a monthly payment.
Once you calculate the loan payment amount, you should also examine the total cost of the loan, as when budgeting, you need to take a long term and short term approach to your finances. One tool that can assist you is a loan interest calculator.
How to Use a Personal Loan Calculator
With this tool, you enter in your beginning balance, your minimum payment -as estimated by the loan payment calculator - then the interest rate and the maximum amount of what you can pay monthly. The results compile how much the loan will cost you in interest if you only make the minimum payments and how much you'll pay when making the maximum payments.
Using all this information, your next step is to determine how much you can afford to pay per month for the loan. To aid you with this, set aside the amount of money you estimate you'll pay on the loan in a savings account for a few months to see how it affects your finances. If you find that you can make all your other payments on time and still achieve your other goals such as saving money for an emergency fund and retirement, then you are financially ready for the loan.
Why Use a Personal Loan Calculator
If you don't need funding immediately, you can also consider investing your money. One of the best tools that can help you with this a simple loan calculator. Some simple rate calculators show how much money you'll save when you have an investment with simple interest – where the rate remains constant throughout the term of investment – then they'll show how much you'll save with compounded interest.
With this tool, you'll enter in the amount of money you have available to save, how long you to save the funds and the rate of return annually. From there, the calculator compiles the results to show you how much you save with accounts that yield simple interest versus accounts that compound interest.
When you obtain financing, it's important to devise a strategy to repay it as quickly as you can. In addition to making the minimum payments, you can use a loan rate calculator to help you determine how much in additional funds you should pay to shorten the term of your loan thereby saving you money.