+1 973 619 9534 [email protected]

Personal Loan Calculator – All you need to know

You can use a personal loan for a variety of your expenses. A personal loan allows you to have the cash to meet your needs. Here is what happens. You have to apply for a personal loan and after a short application and approval process, you get the money in your hands.

Here is everything that you need to know about personal loans, personal loan calculators, their types, fees, and everything in between:

Personal loans have fixed amounts, interest rates and monthly payback amounts which we also call as EMIs over pre-determined tenure. In the U.S., the typical range of personal loans is from $5,000 to $35,000 with terms of 3 to 5 years. Personal loans do not require collateral like a car or home as secured loans normally do.The lender will take into account your credit score, debt level, income as well as a variety of other factors to decide whether you should get the personal loan or not and if yes, then at what interest rates. Due to the unsecured nature of personal loans, they come with higher interest rates which are sometimes as high as 25% or more. This is to make the lender know the higher risk he is taking with a personal loan.

But, you should know that to enjoy any of these benefits, there are certain considerations that you need to take into account. Curate a wise plan as to how you are going to utilize your loan, find the right lender, and then finalize a deal that best suits you and your needs.

Personal loan calculator and how to use it?

Personal loan calculators are used for giving brief visuals that help in determining the total costs and payments of your loan. The end cost of personal loans is higher than advertised as most of the personal loans come with fees and/or insurance.

You can calculate the equated monthly installments (EMI) using a personal loan calculator. The EMI is calculated in the personal loan amount, interest rate, and tenure. On the amount given for personal loans, the interest rate for a particular duration using the personal loan calculator allows you to know how much EMI you have to pay.

The calculator considers all the variables into account in the process of determining the real percentage rate or APR for the loan. It is more accurate to use this real APR for loan comparisons.

To arrive at the EMI, here are a few things that you need:

  • Loan Amount
  • Tenure
  • Interest rate

These values might vary. The interest rate may vary as different lenders offer loans at different rates. The rate at which your lender is giving you the loan is your interest rate. The calculations you acquire via personal loan calculator will help you in achieving three things:

  • EMI – you have to pay each month till completion of full payment.
  • The breakup lets you see the interest portion in each month’s EMI. The rest is the principal amount that you repay every month.
  • The amortization schedule lets you see the breakup of the interest you have paid and the principal that is repaid out of the EMI each month till the end of the loan term. You achieve the outstanding balance after paying the EMI of each month in the amortization schedule. 

Why do you need for Personal Loans?

The main need for a personal loan arises due to debt consolidation. Half of the personal loans are used for debt consolidation. Other uses of personal loans include home renovations, small business expansions, weddings, vacations, and other big expenses. The interest rates for personal loans are although high, but lower than credit cards. This makes personal loans are an ideal means for a person to combine his credit card or other debts at higher interest rates.

You must take the fees into account when you decide to take debt for debt consolidation.

What are the different kinds of Personal Loans?

There are a few types of personal loans you should know about:

  • Secured Personal loans are uncommon but exist. Banks and credit unions usually offer these loans with collateral that include car, certificates, deposits, or personal savings. Similar to other secured loans like auto loans and mortgages, the borrowers can risk losing their collateral in case of failure to make timely payments. Usually, the maximum loan limit is determined to keep in view the collateral that is being put up for the loan.

Most of the online lenders offer unsecured personal loans only. And though personal loan calculator is usually used for unsecured personal loans, they can be used for secured loans as well as long as the inputs correctly reflect the loan conditions. 

  • Banks, credit unions, and other financial institutions used to provide personal loans before the advent of the internet. These are called traditional personal loans. They could make a profit off of it in the form of checking accounts, certificates of deposits, money market accounts, and savings accounts. And then lending the money back out at higher interest rates. Cash advance stores and pawn shops are common providers of personal loans at higher interest rates.

  • Another popular kind of personal loan is getting them through P2P lenders. The internet has played a key role in the spreading of this kind by introducing this new way of loan lending. Rather than opting for borrowing traditional personal loans from lending institutions, people can directly get in touch with online financial service companies that hook them up directly with lenders. 

Most of these lenders happen to be regular people looking for some easy way to invest their money. This process is called peer-to-peer or P2P lending. These loans usually come with more favorable terms due to the low cost and low risk. P2P service providers provide their services through a website that is a lot cheaper to manage compared to a credit union or brick-and-mortar bank. 

Also, you should know that these providers do not lend money directly. Rather, they act as middlemen and keep a small share from all the transactions. In the case of the borrowers’ default, the lenders bear the loss. That’s why P2P service providers operate at low risk. 

Does creditworthiness count in personal loans?

The main determining factor that impacts the grant of a personal loan is the creditworthiness of the person applying for the loan. You must have a good or excellent credit score if you want to get personal loans at good rates.

People with poor credit scores would find few alternatives regarding a loan. And the loans they might get will come with unfavorable rates. Defaulting on personal loans could significantly harm your credit scores like credit cards or any other loan. There are other things to look at apart from credit scores and include stable employment history, debt-to-income ratios, etc.

How to apply for Personal Loan?

The process to apply for a personal loan is quite simple. The lenders usually ask for your basic information which includes credit report information, employment, income, and other personal data. They can easily get this information from the personal financial statement, income tax returns, recent pay stubs, or W-2 forms.

Borrowers today have the feasibility to submit their applications online as well. After submitting their application, the lender assesses and verifies all the given information. Some lenders may take the decision right away, while others may take a few days or weeks even. Applicants get accepted, rejected, and sometimes accepted with conditions. When the applicant is accepted with conditions, it means that the lender will give money only if those conditions are met.

Once the loan is approved, personal loans are sometimes funded within a day. So, if you need cash on an urgent basis, personal loans are the way to go. Some lender transfer money to your debit cards while some send checks. Be sure that you read the contract carefully and remain within legal boundaries while spending the loan money.

Different Personal Loan Fees

Loans entail a variety of fees apart from the interest payments and principal amount. With personal loans, however, there are different fees you have to take note of:

  • The procedure for processing applications has a few costs. This fee is called an application or origination fee. Usually, this application fee is 1% to 5% of the loan amount. Some lenders deduct the fee after approval while some ask for it first.

  • The prepayment fee applies only when the borrower makes the repayments before or pays off the personal loan. But this kind of personal loan has almost become non-existent.

  • Borrowers have to pay late payment fee for paying past the due date. You can avoid this by making timely payments. If you are unable to make the payment on the due date, it is better to inform the lender beforehand. Sometimes lenders can extend deadlines as well. This fee could be flat or a percentage of the payment.

The borrower might be asked to purchase personal loan insurance policies by the lenders to cover occurrences like death, disability, or loss of a job. This could work out for some, not all.

Are there any other alternatives to personal loans?

If you are unable to fund a reputable or willing source to lend, there are some other substitutes to unsecured personal loans:

  • You could ask someone to cosign a personal loan with you. This cosigner could be your friend, sibling, parent, spouse, relative, or a close friend. But they should have a good credit score and stable employment. The cosigner shares the risk with the borrower. If the borrower defaults, he is liable to make the payments.

  • You can apply for zero or low introductory rate credit cards. They are great for carrying the debt month-to-month without interest for the borrower who is willing to pay off at a future date. This is one of the main reasons to choose these over applying for a personal loan. Try to avoid rollover fees. Save the date and be sure to remember the date when the credit card issuer’s interest-free period expires.

  • You can always borrow from friends and family. They easily lend money at low or no interest rates. There is also the option of crowdfunding. There is no need for repayment. A bit tough, crowdfunding is a great idea. It is important for the people to believe in your cause and purpose of the crowdfunding project.

  • There is no surefire way to know if you will receive crowdfunding, those who are starting new businesses and show promise, or are dealing with financial problems they cannot deal on their own receive crowdfunding easily. 

  • For people who are knee-deep in financial issues, religious or other types of the non-profit organization are a lifesaver.

  • You can secure your loans to the existing collateral that you have such as expensive gems, jewelry, a car, or a house. Compared to unsecured loans, most lenders see secured loans as a safe and less risky option. They are also more willing to offer higher loan amounts along with favorable rates. What you can do is borrow a large sum of money and you placing home as collateral via HELOC. But, keep in mind that lenders are eligible to take the lawful owner of any of the signed collateral. If you default the payments on a HELOC, it could lead to a foreclosure.

Look out for Fraudulent or Predatory Loans!

Sadly, the risk of predatory and fraudulent lenders is real. There are a few signs that could warn you beforehand to steer clear of these lenders. For example, it is uncommon for any lender to approve a loan application and extend an offer without knowing about your credit history. Anyone doing so should not be trusted.

Then, there is a predatory kind of loan. These loans are advertised via phone or mail. We can say the same for cash advances, auto title loans, no-credit-check loans, and payday loans. These loans come with short payback terms, high fees, and very high-interest rates.

Having the right knowledge and using a personal loan calculator will allow you to make an informed decision and know how much you have to pay.