Taking out a loan is one of the most challenging decisions that we will make in our life. While we all aspire to avoid loans and other forms of financial obligations, life can get in the way, and we face the inevitable. If that happens, it pays to be ready and informed with access to the right resources and tools. One reliable tool that you can use is a loan calculator. It is a financial tool that’s often freely available in the Philippines that can help you decide whether the loan package is justly priced for you.
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Whether you are planning to buy a car, cover a mortgage loan, or just facing an emergency, the loan calculator can help you decide whether it’s a good decision to push through. In addition, using a loan calculator, you can instantly estimate your monthly payment based on the information you provide. In short, a loan calculator is your partner in making important decisions before signing up for a loan.
Loan Calculators – How They Work
You can easily find loan calculators on the websites of banks and other recognized lenders that allow you to check how much you can borrow, the loan term, and monthly payment. Using a loan calculator is easy- you provide all relevant information, including the amount, preferred payment term, interest rate, and details. The calculator will then summarize your monthly payment, loan term, and the annual percentage rate. What’s interesting about some loan calculators is that you can easily change information like the interest rate and period to find a suitable monthly payment.
For example, a loan calculator offers flexibility in determining the monthly payments and loan terms if you’re applying for an auto loan in the Philippines. Traditionally, banks allow individuals to choose between 36 months and 60 months for the length of the contract and at least 20 percent in down payment. If you want a more manageable monthly payment, you can set the loan calculator to 60 months with a 20 percent down payment.
But if you are more aggressive, a 36-month term is better, but it comes with a higher down payment. Remember, the interest rates may vary depending on the contract length and other factors. What is indicated in the loan calculator is an estimate, and the actual monthly payment and interest rates will come from an authorized bank representative.
Where to Use a Loan Calculator
A loan calculator is an indispensable tool for those taking out a loan and individuals working in the financial industry. It’s a management and financial tool that can help promote transparent and fair business practices. As such, calculators are now standard in many business environments and benefit many types of loan applicants.
For example, you can find a reliable mortgage calculator online. A mortgage calculator provides a monthly payment estimate using the prevailing interest rates. You can get your monthly mortgage payments by giving the home price, down payment, and loan term length. Like auto loan calculators, you can use your mortgage calculator to set different price scenarios. Using a mortgage calculator, you can check the possible monthly mortgage payments and adjust the terms and interest rate to keep them manageable.
Using the prevailing interest rate, you can also use the mortgage calculator to track your mortgage payments or how your outstanding balance is reduced over time. If you want to pay off the mortgage loan before the loan term is over, you can also use the mortgage calculator to figure out how much the updated monthly mortgage payments will be at a specific interest rate to reach your goal. In addition, you can use a mortgage calculator to check your debt-to-income ratio or assess your debt load.
Factors that Can Affect Your Loans
As you can see, loan calculators consider several factors to generate monthly mortgage payments or amortizations. However, if you want to maximize its features fully, then it’s essential that you know the following factors and how they work:
- Annual Percentage Rate (APR). It is the essential factor that determines your auto or mortgage payments. In general, the lower the interest rate of your loan, the better. For auto loans, the interest rate ranges from 7 to 9 percent, depending on the initial payment and length of the contract. Therefore, to know your credit or loan’s actual cost, you need to check and compare the interest rates.
- Length of contract. The loan contract length depends on the type of loan. For example, if you are looking at a housing loan, you can get it at 5, 10, 15, or even 30 years. You can use the calculator to set the maximum loan amount, potential mortgage payments, and other details like property tax and homeowners’ insurance. On the other hand, most commercial banks in the Philippines will ask you to choose between 36 and 60 months if you are applying for an auto loan.
- Gross monthly income. Your gross monthly income is another essential factor that comes into play when computing for your loan. Initially, the bank will ask for the calculator’s figure and use it with the prevailing interest rate to come up with a loan amount.
As you can see, a loan calculator is a helpful tool for making sound financial decisions. Whether you plan to apply for a personal loan, housing loan with fixed-rate mortgages, or an auto loan, the calculator serves as your friend in plotting your options. Most commercial banks and lending institutions provide their customers with calculators where you can input your banking details, interest rate, and loan amount. The calculator then processes the information using the prevailing interest rate to generate your loan summary. You can even find advanced calculators that let you assess the potential property tax and insurance with the effective interest rate.
However, you should know that the computation from a calculator is only an estimate, using the prevailing interest rate and availability information. An authorized bank representative determines the actual loan computation, interest rate, and final loan amount when you are approved for your loan.
While the loan amount, payments, and interest rate are not final, using a loan calculator is still essential. As mentioned, the calculator is a management tool that helps us see and assess our options, from monthly payments to the interest rate. We must be careful when taking out a loan and accepting an interest rate. Remember, if we proceed and fail to complete our monthly payments, the lender has the right to take our car, foreclose our property, or pull down our credit score!