How to use a loan calculator

15 February2021

If you took out a loan, how much would it cost you per month? Of course, the answer is "It depends" - but what does it depend on? There might be more to it than you think, and that's where a loan calculator could come in very handy.

Different calculators will work in different ways, but here we're going to look at using the loan calculator on the Think Money site.

How big a loan are you looking for?

First (and probably most obvious) how much are you thinking of borrowing? The bigger the loan you take out, the more you'll have to pay back in total - and the more you'll have to repay every month as well.

If you're ever thinking of borrowing money, it's important that you're confident you can repay it. Otherwise, you can end up with all kinds of problems, from damage to your credit rating to legal troubles in the courts.

And if you're thinking of securing a loan against your property, it's even more important to be careful: if you don't keep up with your payments, you could end up losing your property (although this wouldn't happen as soon as you'd missed one payment!).

If you move the first slider on our loan calculator, you can see what impact the size of the loan could have on your monthly repayments.

Just remember that this loan calculator is 'intended for illustration purposes only'. It doesn't guarantee that you'll be able to find a loan, or that the payments would work out in this precise way if you do find one. If you'd like a personalised quote, or you'd like some advice, talk to an expert.

How quickly are you thinking of repaying the loan?

You might have quite a bit of flexibility when it comes to agreeing your loan repayment period. In a nutshell, what really counts is this:

  • If you arrange to repay a loan more quickly, you'll pay more each month (because repayments are spread out over fewer months) but you'll pay less in total (because interest won't have as long to rack up).
  • If you arrange to repay it more slowly, you'll pay less each month (because repayments are spread out over more months) but you'll pay more in total (because interest will have longer to rack up).

So, just move the second slider on our loan calculator to find out what kind of impact a shorter / longer repayment period could have on your monthly payments.

What's your credit history like?

Finally, what's your credit history like? If you've had debt problems in the recent past, you might find it really difficult to borrow money today - and if you find a loan that's open to you, you might well pay more for it (i.e. a higher interest rate).

On the other hand, if you've never run into money problems and you're doing well financially, you're likely to be seen as a low-risk customer, which means you could be offered a lower interest rate on your loan.

Using the third slider, you can tell our loan calculator how good you think your credit history is. You can choose 'poor', 'average' or 'good'. You'll see that a poorer credit rating would mean you'd pay more every month, while a better rating means you'd pay less.

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