Loan Repayment Calculator
For most people, debt planning begins with loan repayment calculators, which are indeed one of the most sought-after online financial planning tools. Nevertheless, these are mere computer programs that cannot be entirely relied upon. That’s because debt planning involves both qualitative and quantitative aspects, while loan repayment calculators only focus on the latter.
Over the past decade, there has been more interest in financial literacy than ever before. People have begun realizing the seriousness of choosing the right financial services, be it the stock market’s hidden commissions or the hidden borrowing costs that come with loans. At present, most people tend to rely on their own calculations to plan their finances, which is great but needs in-depth knowledge of how the industry works. Unless you have this sort of working knowledge, you could end up making some serious mistakes.
There are countless loan sharks out there in the UK’s financial services market, who dupe potential buyers by tricking them into high-interest rates. These are illegal lenders who are not authorized or licensed to lend money in the UK. As these lenders are unregulated, they practice illegal debt collection methods and therefore it is best to stay away from them. At Money Pig, we partner up with direct lenders who have high ethical standards and believe in absolute transparency. All the lenders within our network are licensed and regulated by the Financial Conduct Authority (FCA) that regulates all financial service providers in the UK.
However, to appreciate the level transparency our lenders provide, you need to understand the pros and cons of using loan repayment calculators and how financial organizations can trick you. As a rule, most loan repayment calculators run calculations based on the principal amount, interest charged, and the period of borrowing. This minimal information is by far inadequate to make a borrowing decision and therefore must be used carefully. So, we bring you this thorough guide that tells you everything there is to know about loan repayment calculators and their effective usage.
Loan Repayment Calculator | FAQs
- What is a loan repayment calculator?
- What are the disadvantages of using a loan repayment calculator?
- How does a loan repayment calculator work?
- How to use a loan repayment calculator?
- What interest rate should I use in a loan repayment calculator?
- What loan term should I use in a loan repayment calculator?
- How accurate is a loan repayment calculator?
- How accurate is the interest rate percentage?
- Do loan repayment calculators exclude hidden fees?
- How to calculate repayment of multiple debts?
- How to plan mortgage repayment with payment holidays?
- How to plan student loan repayment?
A loan repayment calculator is a tool offered by financial services providers to help calculate your periodical loan repayments such as monthly, fortnightly, or weekly repayments over a period of time. This helps you get an estimate of the amount you need to repay, which is calculated based on the inputs that you provide. Usually, you would be required to provide details such as the amount you wish to borrow, APR or interest rate charged, and duration of the loan. Based on this, the loan repayment calculator would provide you with the output.
Loan repayment calculators are useful in doing the initial research before borrowing a loan. It is particularly helpful in ascertaining the monthly repayments that you would be making for a certain duration. However, to effectively use the loan repayment calculator, you need to have quotes from multiple lenders. This requires you to individually apply to multiple banks or direct lenders, which is a lengthy and strenuous process. An easier alternative is to put in your application with Money Pig and let us connect you to multiple direct lenders. We team up with several Financial Conduct Authority (FCA) licensed direct lenders, from whom we can pull out quotes for free. So, if you are in the process of comparing quotes, then consider putting in a single loan application to Money Pig and get quotes from several licensed direct lenders for free.
The biggest disadvantage of using a loan repayment calculator is the fact that it only provides access to quantitative data and not qualitative data. For example, if you solely compare loans based on APRs, interest rates, and the duration of the loan then that’s not it. Instead, loans must be compared based on several other factors such as the type of loan, its commercial clauses, allied charges, etc… Quite a few lenders charge something called a set-up fee, which may or may not be included in the APR, so this also needs to be taken into account.
In most cases, the set-up fee could be anywhere between 5 to 7 percent of the principal amount but could go much higher. Most lenders make use of such loan repayment calculators to induce borrowers to transact with them. However, at Money Pig, we work with a bunch of highly ethical and transparent lenders who would tell you exactly how much money you need to repay based on your requirements. Also, they would be glad to provide you with a clear break down of all the borrowing costs before you enter into a loan agreement. This sort of clarity helps you make a more informed decision.
Getting to know how a loan repayment calculator works is the first and foremost step towards getting accurate results. A loan repayment calculator is designed to help you determine your monthly payments based on the total amount borrowed, interest rate, and the duration for which you wish to borrow the loan. Now, this is something that you can do using a simple math formula, without a loan repayment calculator. However, using this tool helps save up time and effort involved in running the calculation.
Loan repayment calculators are software applications designed to do the math for you and just as you would not get the right answer without using the right data, so wouldn’t the loan repayment calculator. Now that takes care of the quantitative aspect of the loan but has nothing to do with the qualitative aspects such as your credit score and other eligibility criteria. So, although loan repayment calculators are very useful, these are not comprehensive. Therefore, it is best to restrict its use just to get an estimate of how much you would have to repay each month.
Loan repayment calculators are simple tools that help you get a clue of how much money you would repay over time. However, it is not suitable to compare loans and make a borrowing decision without taking into account certain other key factors such as repayment clauses, debt collection clauses, etc… To use a loan repayment calculator, you need to first apply for a loan and get quotes from the lender. A lender would be able to provide you with it when you seek a quote by stating the amount you wish to borrow and the duration of the loan. Usually, the APRs are higher for short term loans and lower for long term loans. Once you have the APR, then you can start using the loan repayment calculator by entering the amount you wish to borrow, APR, the period for which you intend to borrow the loan amount, and the frequency of your repayments such as weekly, bi-weekly, or monthly. You then get the output which gives you an estimate of your periodical payments. You can then consider increasing or decreasing the borrowing period based on your income and eligibility.
While borrowing a loan, you need to avoid comparing them based on the interest rates and instead make use of APRs, which usually includes all the borrowing costs. However, the structure of borrowing costs depends on the lender and therefore do not let the interest rate be the deciding factor. It is just one of the many borrowing costs you bear. Instead, ask the potential lenders for a clear break down of the borrowing costs and also of the APR. Once you have those details, you would be in a better position to make a borrowing decision.
So, instead of interest rate, make use of the APRs or the aggregate borrowing costs converted into percentage format. This should give you a clearer picture of how much you would end up repaying. Most lenders would be hesitant to provide you with a clear break down of the borrowing costs, but at Money Pig, we believe in absolute transparency. Our direct lenders would be glad to provide you with plain facts and so you would have no trouble understanding the borrowing costs. As we believe in a long-term relationship with our customers, we do not work with lenders who trick potential borrowers into an unfair deal.
Loan repayment calculators are very flexible and let you enter different durations to check your monthly repayments. However, the duration for which you must borrow a loan is something that you need to sit down and decide based on certain key factors. To plan the right repayment period, you need to take into account the amount you wish to borrow, your current monthly income, and foreseeable financial commitments. After assessing these three factors, you must plan the duration of loan repayment.
As far as your income is concerned, it is always recommended that you make use of a maximum of forty percent of your monthly income towards the repayment of loans. That leaves you with sixty percent that can be used towards savings, paying your bills, accommodation, and other expenses. To do this, you need to take into account the amount you wish to borrow. For instance, if you have a monthly income of £5,000 and wish to borrow a loan for £100,000 at 10% interest, then you may want to plan a loan for seven years, which would bring down your monthly payment to around £2,023.80 per month. This makes sense if you have children that are about to go to school or some other financial commitment that you need to shoulder. So, depending on the amount you wish to borrow, your income, and foreseeable expenses, you need to plan the duration of your loan.
Loan repayment calculators are designed to run calculations based on the inputs that you provide. So, yes, although they are fairly accurate, it largely depends on the data that you enter. So, although you must not entirely rely on the output, it can be very useful in getting a close estimate. Usually, lenders do not disclose the entire borrowing costs that you would incur on a loan, and that leaves you with minimum information such as the interest rate. Now, you must understand that the interest rate isn’t the only borrowing cost that you incur. So, entirely relying on a loan repayment calculator would be the wrong way of doing things. Unlike other lenders, Money Pig’s lenders have no trouble disclosing the borrowing costs to you. So, by borrowing through us, you can get all the necessary information required to use the loan repayment calculator more effectively.
The interest rate that you get from the potential lender would be the deciding factor when it comes to calculating your monthly repayments. That’s because the loan repayment calculator merely runs mathematical calculations based on the interest rate that you enter. In reality, the lender includes several other costs besides the interest rate to arrive at a final percentage. Also, the lender decides the interest rates that he would like to offer you after evaluating your credit score. In the UK, the FCA makes it mandatory for all lenders to run a credit check before lending a loan. At Money Pig, we simplify this process by running a soft credit check before forwarding your application to the lender.
In most cases, the lender would charge a higher interest rate if your credit score is low and vice versa. Moreover, credit score keeps changing with every action that you take so you cannot be sure of your current credit score until someone tells you about it, which is only after running a credit check. So, the final offer that you get may be different, which means that you would have to submit your loan application and wait for some time to know exactly how much APR you would have to pay. So, if a bank or a direct lender advertises a low-interest loan, then do not consider that to be the final figure. As mentioned, the actual offer is likely to be quite different so you need to wait for it.
In most cases, the total borrowing cost is always more than the sum of the principal amount and the interest rate. Most lenders will add other fees such as loan processing fees, set-up fees, and more, which spikes up your monthly payments. These are either charged as standalone costs or included in the APR but are seldom excluded. You can call these costs as hidden fees because most lenders won’t discuss it openly.
In fact, most banks and lenders will not give you complete clarity about these additional costs and stick to highlighting their low-interest offers. They do this to make you believe that the deal is profitable and most potential borrowers fall for it. However, at Money Pig, we partner-up with lenders that have high ethical standards and will provide absolute clarity. So, make an effort and ask them for a clear breakdown of the APRs and other borrowing costs. At any point, if you sense ambiguity, then you can end interaction with that particular lender and refuse to enter into a loan agreement. We will then put you through another lender and take suitable action against the one that did not provide clarity.
Now that you are aware of how misleading the loan repayment calculators are, you know why they are created in the first place. So, never underestimate the need to run manual calculations on paper before borrowing a loan. Also, make it a point to run the final calculations manually, once you have the correct inputs from the lender.
You can find loan repayment calculators that allow the calculation of multiple debts but that may not always be accurate. That’s because some of your lenders may charge fixed interest rates while others may charge variable interest rates. So, calculating repayments of loans that charge different interest rates with a single calculator may not be the best thing to do. However, you can calculate your debts one at a time, using the appropriate loan repayment calculator and note down the monthly payment for that particular debt. You can then add them all up and figure out your total monthly repayment.
Always remember that multiple debts can mess up your finances and also your credit score by making it difficult for you to keep track of it. Moreover, some of your loans may pose a risk of forfeiture or dire legal consequences and therefore, it is always recommended to consolidate your debts into one single loan. Money Pig’s network of direct lenders offers both secured and unsecured loans to consolidate debts. Most of these loans are advanced with a fixed interest rate, which makes it easier to calculate your monthly obligations and make repayments in a prompt and timely manner.
The UK government has instructed financial services providers to grant up to three months of payment holidays to those affected by the coronavirus. A mortgage payment holiday lets you skip your payment for a period of three months after putting in an application as prescribed by the lender. Most lenders are rolling out such applications on their official websites, which needs to be completed and submitted online. It is also worth mentioning that when you skip payments after following the necessary procedure, the payment holidays do not affect your credit score. So, you need not worry about it for at least three months.
Although the payment holiday lets you skip mortgage payments up to 3 months, the interest would continue to accumulate and will be added to the total interest payable by you. So, the pending amount due by you would be higher than it would be if you hadn’t opted for the payment holiday. So, the total amount payable to the lender would remain as before, and would only be redistributed over the remaining loan period. Some lenders may allow you to make a one-time repayment for the payments that you skipped during the payment holiday. In that case, your monthly payments may continue as before as there would be no need to redistribute the missed payments.
As a student, you need to be very careful about your finances and save up at least twenty percent of what you earn from your part-time job for emergencies. Never use up all your savings and instead consider borrowing a loan before all your savings and emergency funds are exhausted. Money Pig understands the financial hardships faced by students and therefore offers student loans. This type of loan is processed very quickly and the funds are usually released on the same day. If you wish to borrow a student loan, you must submit a free loan application to us. We recommend that you apply for a longer repayment period as we permit up to five years of repayment period on short term loans. This would help you keep your monthly payments low.
Loan repayment calculators work well only when your lender provides you with the right data. For highest transparency and the best APRs, Apply Now.