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Loan Calculators: Know Your Own Worth

Loan calculators are tools available from a range of on-line sources that can help a potential borrower determine whether this is the best time to apply for a loan. It uses a variety of financial calculations including credit ratings and current market rates to offer up the most likely interest rate and repayment terms. And, depending on what one is borrowing for, it can calculate what the overall payments and total cost over the lifetime of a range of loan types will be.

This is a very useful tool when borrowing. It is especially valuable in that it takes the would-be borrower’s credit rating into account. This is something every person should know before going in to borrow money. Since the government offers one free copy from each of the three major credit-reporting companies to an individual per year, there is no reason not to have this information handy when applying.

Examining the impact one’s credit has on a potential loan before contacting a lender is good; as it can give the borrower a chance to improve one’s rating. Say there are some debts or other things marring the report that can be cleaned up fairly easily, making for a much better rate six months down the road. If that is the case, it is in one’s best interest to do this, rather than applying repeatedly for loans, as that, ironically, will damage a credit score, just as being turned down for a credit card can.

Once all of these steps have been taken, the loan calculator can also be used as a negotiating tool. It is important to remember that interest rates fluctuate, and different groups interpret credit reports differently. Therefore the bank will very likely not get the exact same results as the individual, but they should be reasonably close.

No lender is going to give a rate lower than they feel they can and still make a profit, but they do want the business of borrower’s. So if a rate is far higher than the borrower believes she should be offered, or the repayment terms unworkable, the collateral required too much etc., having this information in hand provides room for negotiation. She might not be able to negotiate a better rate and have to walk away from the table, but knowing approximately where one stands going in, is much better than not.

The most important thing a loan calculator will tell a borrower is just how much she can afford to borrow and how high a percentage of each paycheck will go into repaying the loan. This is why it is important to be educated going in. Borrowing more than one can afford is never a good thing.