Credit Loan > Loan Calculator > Loan Calculators: This Is Where the Math Comes In

Using a Loan Calculator

One of the important tools when it comes to borrowing is a loan calculator. This is not something one buys in the office supply section of the store; rather, it is a tool that can be found on-line. The calculator uses a mathematical formula that takes into account a variety of factors to enable a potential borrower to determine whether he or she can afford a given loan under prevailing market conditions and with the rate and terms offered by their chosen bank.

The lender will also provide these calculations, but that is after they have determined the rate and terms they feel comfortable offering you given the information they have gathered regarding your finances. It best to use your own resources beforehand so that you are prepared to discuss the terms intelligently before going in to talk to the lender.

There are many reasons for this. One is that, regardless of the type of loan one is looking for -- auto, mortgage, debit consolidation, bad credit -- certain factors will be taken into consideration, like your credit report, your savings, investments, etc. Knowing these things before you go in will give you a better starting point with the lender than if they have all the information and you have nothing. It may also be that you will not be able to afford the rate and terms of repayment you are most likely to be offered, or that the length of repayment will be longer than you anticipate. Depending on the type of credit you have, and loan you are looking for, there may be added fees or higher minimum payments.

This may also help you determine what type of loan you feel is best for you -- adjustable rate, interest only, amortized -- and again, it is always best to approach this type of situation with as much information as possible. It is never advisable to attempt to borrow money while completely ignorant of the possibilities; you are likely to end up with less-than-optimal terms. This is true whether you are going with a brick and mortar bank or an on-line service.

A lender may also find something on your credit report of which you are unaware of or had slipped your mind, and will negatively impact your interest rates. Using a loan calculator involves knowing your credit rating. Therefore, you may be able to repair this black mark before someone else sees it. This being said, not all loan calculators are equal and therefore careful research must be done when you go searching for one on-line. Make sure to read all the fine print and even compare the results of two or three to see where they differ.