Some lenders may offer loan calculators on their websites. They usually serve as a guide to:
· what a lender may allow you to borrow
· how much the repayments would be
· the total amount of money the loan may cost
Although you may be perfectly capable of working out these sums in your head or on paper, loan calculators may offer a quick and simple solution. They typically also allow you to compare a number of different lenders’ products and lending policies in a short space of time.
The format used by the loan calculators on the providers website many differ so do check this.
How much can you borrow?
Some lenders might need details of everything that you spend you money on here, others may be content with just knowing how much you earn.
When you come to fill in the online fields that ask how much you spend on bills, morgage, food and entertainment, the exercise of providing the information may act as a useful budgeting activity in itself. Perhaps you will typically be surprised at how much you spend when you actually see the amounts written down!
How much will it cost you?
While long term planning may be important, working out how much a loan may cost on a month by month basis may be equally relevant. Accordingly, a loan repayment calculator can generally be a useful tool to help you ascertain whether you can really afford a loan.
The total cost of a loan
If the loan repayment calculator does not show the total cost of the borrowing, you may need to find this out. After all, if the monthly repayments for a long term loan are not much less than what you’d pay for shorter term borrowing, then potentially, if the figures all stack up, you might be able to repay the loan sooner, and avoid paying so much interest.
What else is there to consider?
Loan calculators may typically work using the lender’s standard offer interest rates. However, the rate that could actually be offered to you may be different to the one quoted on the publicity material, depending on:
- your credit score (as if the bank perceives you as a more “risky” borrower you may bear a higher interest rate);
- whether the Bank of England’s interest rate may have changed since the rate was quoted; or
- whether any new rates are available.
Getting an illustration of how much you may be permitted to borrow using a loan calculator is not the same as making a formal application to get a loan. So whilst the calculator may act as a guide, you may not find out the rate that may apply to you until you contact the lender to start the application.
