Fixed rate loans, auto loans, loans with a registered lien or should it just be an installment loan. The range of financing options is as diverse as never before. This makes it difficult for consumers to choose the right loan product. Solve this problem, resourceful developers invented the loan calculator. This tool allows quick selection of loans by filtering all offers on the market. This service is also offered free of charge and can be done conveniently and anonymously from home. Because of all these advantages, every private borrower should use a calculator before applying. To ensure that the full potential of this instrument is used to the full, this manual provides some important information. These tips are designed to help you find the right loan on the best terms.
How does a loan calculator work?
Without first going into detail about the operation, we first discuss the principle according to which such a computer works. This knowledge helps with later entries. Basically, the software of the credit calculator checks the user’s input. This information regarding the loan amount, purpose or monthly repayment rates serves the criteria for the filter. In this first step, all loan offers that correspond to a different purpose or whose maximum amount is below the desired loan are sorted out.
All remaining offers are then sorted in descending order according to their effective interest, so that the best offer immediately catches the eye. In addition to the loans shown, further information is presented that can be important for a first decision. An important example of such a criterion would be the award-dependent or non-credit-related award, which is very important in a direct comparison. In the former case, the personal offer could change. In addition, the loan calculator offers the possibility to jump immediately to the application of the potential lender.
How is a loan calculator operated?
The principle of how it works can easily be concluded from the operation of this instrument. Basically, it is about the following entries:
- loan amount
- Term or monthly repayment rate
- Type of interest
What should be considered when considering the loan amount?
The question of the amount of the loan depends primarily on your own needs. A certain car has its price and a debt rescheduling simply requires a certain amount. However, when using the calculator, the potential borrower should keep in mind that different loan amounts can lead to different results in interest rates. To determine this, just play a little with the height. Even a bank can offer two different interest rates on two loan amounts.
What amount of credit can I afford?
This question decides indirectly about the duration or the monthly repayment. The rates have to fit into the monthly household budget, without the term being extremely stretched. The car loan example shows the necessary way of thinking very clearly. If a car loan with a term of 10 years is taken out, but the car is only driven for 6 years, then the car would have to be paid for 4 years longer than it is used. This is never a good prospect.
An honest financial plan should therefore be drawn up before applying for a loan. This makes it clear which installments and thus what loan amount are possible. The lender could ask for such a plan later anyway and then he is ready.
What should be considered when using the device?
This information can be of great importance or absolutely unnecessary. It can be assumed that as the amount of the loan grows, it will become increasingly important to specify the purpose for which it will be used. With a loan of over 5,000 dollars, hardly anyone will be interested in how the capital is used. This corresponds to a typical consumer loan or small loan.
With a loan of 30,000 dollars for a car loan or 80,000 dollars for a mortgage loan, the risk of “moral hazard” increases. In these cases, the lender wants to know exactly what the money is being used for. In return for this knowledge, however, more favorable conditions are often granted, since the “moral hazard” is a risk that is reduced by the announcement of the use.
What needs to be considered when paying interest?
This point is queried by every loan calculator, although the decision is rather difficult for laypersons. Will the key interest rate level change in the next few years? A normal consumer cannot answer this question. We therefore recommend starting the search with variable interest rates and making a comparison. The providers who are one step ahead with variable interest rates usually have this also with fixed interest rates.