There are countless loans on the market. Therefore, it’s important to compare your options and find the best loan for your particular situation. A loan calculator can make this process far easier and faster. But is it accurate? Keep reading to learn the answer to this question.
What is a loan calculator?
A loan calculator is a convenient online tool you can use to estimate your monthly payment. It’s based on a specific interest rate and repayment term. You can play around with various rates and terms to discover how different loan options will impact your monthly payment. A loan calculator can also show you how much interest you’ll pay over the life of a loan.
You can use a loan calculator before applying for or accepting a loan to help give you a better idea of the impact the loan may take on your finances. This way, you still have a chance to shop around or select another option to finance your purchase before signing any official documents.
Are loan calculators accurate?
As long as the information you enter is correct, loan calculators are pretty accurate. However, it’s essential to understand that there may still be a difference between a calculator’s estimate and what you actually qualify for from a lender.
For this reason, you should familiarize yourself with how these calculators work and use them to help you evaluate various loan providers. Don’t forget that while a longer term will result in a lower monthly payment, it will also cost you more in interest. On the other hand, a shorter team will come with a higher monthly payment but lead to greater interest savings over time.
Types of loans
Now that we’ve explained what loan calculators are and how they work, let’s go over the various types of loans you may apply for.
- Home loans: Also known as mortgages, home loans are designed to help you cover the cost of a home. They usually come with fixed or adjustable rates and longer terms of 15, 20, or 30 years.
- Car loans: Car loans are precisely what they sound like: loans you take out to purchase a car. Since they’re secured to the vehicle itself, a lender has the right to repossess it if you fail to make your payments.
- Personal loans: With a personal loan, you can fund just about any expense and can be unsecured or secured. The most common uses for personal loans include debt consolidation, home improvement, and emergency expenses.
- Student loans: Student loans are used to cover higher education costs like tuition and books. These loans are offered by the federal government and private lenders.
The Bottom Line
A loan calculator can be a valuable resource, no matter what type of loan you want to take out, whether it’s a home loan, car loan, or student loan. Loan calculators can help you explore different scenarios pertaining to your personal finances and help you figure out what the best option is for your budget.