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How to Calculate Your Monthly Loan Payment
There are lots of reasons why you might want a personal loan. Perhaps it's to consolidate some credit card debt, or for a home repair project, or maybe you'd like to invest in a small business. Whatever the reason, it's important to know just how much that loan is going to cost you in the long run. That's where a loan calculator comes in.
A loan calculator is a simple tool that will allow you to predict how much a personal loan will cost you as you pay it back every month. It's quite simple: You provide the calculator with some basic information about the loan, and it does the math and spits out your monthly payment.
A loan payment calculator can typically be used for mortgage or auto loans or another type of fixed loan.
You need to be prepared to provide the following:
1. The amount of the loan along with any up front fees.
2. The term or length of the loan (meaning how long you have to pay it back)
3. The interest rate of the loan.
The interest you pay for your personal loan will depend on your credit score and the information in your credit report. The higher your credit score, the lower your interest rate will be, and the less you'll pay for your loan in the end.
If you're not sure whether you have good credit you can use Credit.com's free Credit Report Card for an easy to understand overview of your credit report along with your credit scores.
Calculating Loan Payments and Costs
Anytime you borrow money; you will find that the loan repayment terms are of the utmost importance and you want to ensure that the terms and the payment amount are affordable and fall within your budget. A loan payment calculator is an easy tool to use to help find these magic numbers, so you are better informed moving forward.
A loan calculator makes it easy to play around with the numbers and allows you to see what would happen if you were to borrow a bit more or even a bit less from the lender. You can also see what could happen with a lower interest rate.
Interest Only Loan Payment Calculations
When you are trying to determine the amount of interest you will be paying on a loan, take the amount of money you will be borrowing and multiply it by the annual interest rate. You can then divide this number by the amount of payments you expect to make per year.
The payment will remain the same per month unless you make additional payments to lower the principal balance on your account.
Credit Card Payment Calculations
Credit card payment calculations are also easy to find out because the lender will usually use a formula when they are determining what you minimum monthly payment will be on the credit card.
Some credit card issuers may require that you pay a certain percentage of the overall balance each month. Most will require at least a 3% payment of the total balance each month. However, paying more than your minimum is always recommended. You should also remember that you will be charged interest on the balance each month as well.
Interest and Costs
If you don’t think that you can cover the monthly payments you have to make, then it is a good idea not to make big purchases you know you cannot afford. While the monthly payment is important, you should also consider the price of the purchase you want to make, the amount of interest you will have to pay for the duration of the loan, and what are the fees involved with borrowing the money in the first place?
These three things are big considerations to make when applying for a loan and calculating your monthly payments.
Loan Calculator Estimates
When using a calculator to determine monthly payments for any type of loan including a mortgage or auto loan, you should always remember that they are only supplying you with rough estimates of what these payments may look like. There may be other factors in play on the side of the lender that could cause a slight change in these numbers.
However, a rough estimate is definitely better than no estimate at all!