The Benefits Of Using A Loan Calculator

When you are planning to borrow money, it is important to make sure that you do so in the most financially prudent manner. Otherwise, you can quickly find yourself under a mountain of debt. Many people have landed in financial hot water because they borrowed money without taking the time to explore the consequences of doing so.

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A useful tool that you can use during this process is a loan calculator. These tools let you play around with various possibilities to see how they will affect you in the future. With this information, you can decide whether taking out a loan is really the best course of action.

Online Loan Calculators

You can find quite a few different calculators online, ranging from very basic ones to ones that are

quite complex. However, at heart they all let you do the same thing. With one of these tools, you can see how much you will end up paying by borrowing a certain sum of money at a certain rate of interest.

With most of these tools, there are three main pieces of information that you will input. First of all, there is the amount that you want to borrow. Second, there is the term of the loan, which is how long it takes you to pay it back. Finally, there is the interest rate associated with the loan.

Making the Right Adjustments

By adjusting these inputs, you can see how changing them will affect the amount that you have to pay, both on a monthly basis and in total. For example, by extending the length of the term, you can often reduce your monthly payments. However, paying the loan back over a longer period of time may mean that you end up paying more overall.

Similarly, the interest rate can have a big effect on how much you will pay in total. Even a difference of a few tenths of a percentage point can add up over 20 or 30 years. For example, if you are borrowing £5,000 at a rate of 4 percent for 10 years, you will end up paying a total of £6,075. If the interest rate were 4.5 percent, you will pay nearly £200 more.

For mortgages, a lower interest rate can save you quite a lot of money, since you are often borrowing a larger sum. A 30-year mortgage, £200,000 at 4.5 percent will cost you a total of £364,000. Lowering that interest rate to 4.2 percent will save you £12,000.

Pay Close Attention to Your Monthly Repayments

Many people pay too much attention to the monthly premium that they will be paying, so they try to keep this as low as possible. However, while this may save you money on a monthly basis, it will end up costing you more in the long run. It is often wiser to pay a little more each month if it means that you will be out of debt more quickly.

Using a loan calculator can be a great way to figure out the true cost of borrowing money. Be sure to use one of these tools before you apply for a loan.

If you are concerned that mounting debt is becoming too much to deal with, the following video offers some great advice –

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