Credit Loan > Loan Calculator > Loan Calculators: How Much Can You Really Borrow?

Loan Calculators: If It Were Only That Simple

When you take out a loan, there is usually more than one option for repayment, particularly in the case of a home loan. Using loan calculators as you prepare for this process can help you decide how much you can and should take out.

There are many factors in applying for a loan. Interestingly, the actual dollar amount is only one of these, though it touches on all the other aspects. The first, of course, is for what purpose you need the loan.

After that, you need to figure out your current debt to income ratio. This means looking at all your monthly expenditures – bills, retirement contributions, etc. – and determining what is left at the end of the month. This is how much you will be able to pay each month on a loan, barring the unexpected.

This is where the calculations start to get a little esoteric. It isn’t just a simple matter of $2000 a month for 10 years and you’ve paid off your $240,000 house. Nor is it just factoring in the interest. There are fees, property taxes, insurance, closing costs and (no matter how much research you do, or how prepared you think you are) a couple you’ve never heard of and didn’t anticipate but which are legal and a vital part of the process.

These fees will all be folded into your loan, which is very convenient, but also raises the total cost, which increases how much interest you pay and how long the loan will take to pay off. There is also a little matter of what interest rate you will qualify for.

This is determined by looking at your credit rating, which views your credit history, noting not only your payment history, but what kind of defaulting history you have and what kind of a risk that makes you. This is information the bank will look at closely before they offer you terms, but it is also available to you to educate yourself with before applying for a loan.

Every person is legally entitled to one free report annually from each of the major credit companies. Using this information and an on-line loan calculator, you can punch in all the requisite data and come up with a pretty fair approximation of what interest rate and terms the bank should offer you, and whether the loan amount you are looking for is realistic given your current economic status. This is a good negotiating tool as well as for your own edification.