Consumer loans are funds made available to consumers to help them take care of some day-to-day expenditures. This financial aid can also come in handy for carrying out some capital-intensive projects. There are different types of consumer loans and they include personal loans, mortgages, automobiles, medical and student loans.
There are proliferations of banks that offer this financial product and each of them has terms and conditions that may vary from the norm. Due to these proliferations, shopping for the best offer can be an onerous task. There are many factors to consider and if care is not taken, one can end up with an agreement that they will regret at the end of the day. Click here for more information on how to choose the best consumer loan for you.
We have mentioned that there are many factors to consider before one even starts the process of applying for a credit advance. However, in this article, our focus will be on how to use a loan calculator and its benefits. But before then, let us briefly look at 2 factors to consider before applying for loans.
2 Factors to Consider Before Taking Out a Loan
Although loans are becoming increasingly easier to access, the terms and conditions do not seem to be getting better no thanks to global inflation. That is why every consumer owes it to themselves to ensure that they think carefully and deeply before borrowing.
Apart from using a loan calculator which we will discuss separately, the following are 2 factors to consider before filling out an application for a loan:-
The Purpose of the Loan
Before you go ahead to fill out an application form for any type of consumer credit facility, you need to be certain of the purpose of the loan. One reason for this is that interest rates and repayment durations differ depending on the type of loan.
So take for example you want to renovate your home; the best option to go for might not be a mortgage refi but a personal loan or vice versa depending on some other factors. But a more definite example will be a student that needs to finance their tertiary education. Imagine taking out a personal loan instead of a student loan. You’d end up short-changing yourself and putting yourself under undue pressure.
Another reason for checking and ascertaining the purpose for which you want to borrow money could be to know whether it is really worth it. For example, instead of borrowing funds to go on vacation, can I save up some money and go at a later date? Or instead of using a personal loan to fund my wedding, can I readjust my wedding budget and do something within my means?
If you do a little bit of introspection, you might find out that you don’t need the credit facility or that it is actually the only way out. So assuming you decide to go ahead, we now go on to consider the next factor…
Ability to Repay
Many people just leave this to chance; by this, we mean that they do not count the cost of taking the credit advance. There are questions to be asked to enable you to know whether you can in practical terms pay back what you borrowed when due. This is not about having my fingers crossed and hoping for the best.
Can your income accommodate the monthly payments after your living expenses are paid? If the interest rate rises say up to 5% or more, can you still afford to pay and maintain your present lifestyle? Or do you have to forgo some daily necessities to keep up with the payment?
Answering the above questions honestly will give you a clear picture of whether to go ahead with the application or not.
What Is a Loan Calculatorand How Does It Work?
A loan calculator is a tool that helps consumers calculate what their monthly payments will be for any type of loan that they take. It also helps the consumer know the amount of money that they can apply for and repay comfortably based on their income and additional factors.
This tool is available on the website of any bank that offers consumer loans and all you need to do is input the amount that you want, the repayment period, and your credit score. If you don’t know your credit score you can estimate it. Some calculators may not require that you input your credit score.
You’ll get the following results after inputting the required information:-
- The monthly repayment amount (this will be the installments and the interests).
- The effective interest rate
- Fees, charges, and interest per month
- The total cost of the loan
- The total sum paid at the end of the loan duration.
One thing you have to bear in mind is that this result is just an estimate. However, it helps you have a picture of what you are getting into.
Benefits of Using a Loan Calculator
There are at least 3 benefits that you get from using a lånekalkulator for forbrukslån(loan calculator for consumer loans) and they are as follows:-
Helps You Simplify Repayment
With this tool, you do not have issues calculating how much you will repay monthly. It does all the calculations for you and all you have to do is note it and you can even set an automatic debit for it when you get the credit advance.
It Gives You Real Time Information
Interest rates can change at any point in time but every country has regulatory bodies that update this information and makes it available to everyone in real time. So before you fill out an application to borrow money, you can always find out what the interest rates are at the moment.
It Is Mobile Friendly
You can quickly access all the information you need with your phone. You do not need to have your laptop or desktop before you can compare offers and get the best deal for you. You can do your comparison shopping on the go and bookmark the page till you are ready to proceed with an application.
This article has shared some vital information about consumer loans and why you need to use a loan calculator. We hope you bear these tips in mind so that you can get the best deal for you whenever you need to access a credit facility.