Understanding loan terms can be very confusing with the terminology and math involved.
Luckily technology has advanced enough that loan calculators can easily be used online simply by plugging in the numbers.
There are numerous reasons for using a loan calculator including understanding exactly what the cost of a loan really is.
Traditional banks are regulated to clearly explain the costs of a loan including amortization, the schedule of interest and principle payments over the course of the loan, Annual Percentage Rates, fees, repayment penalties etc. The documents are legal documents required to be given to the borrower when receiving a loan so the client never needed a loan calculator, it was all done for them.
In the past decade non-traditional money lenders have burst onto the scene. The industry began unregulated or with limited regulation and these lenders quickly obtained a bad reputation for abusive or usurious lending practices. Not being required to disclose the same things as traditional banks, these lenders offered interest rates of 20-30% for emergency payday loans but didn’t disclose the amortization or annual percentage rate reaching into the 1000 percentile. They also didn’t have limit on what they would lend thus creating a desperate debt crisis for those who borrowed money.
The industry has become more regulated and now licensed money lenders are limited on the amount they can lend, the fees and interest they can charge and have to comply with regulation documents within their industry but a loan calculator can save you any unexpected surprises.
Using a loan calculator can help you understand exactly what you will be paying before you take a loan out.
Calculators can help you determine the best way to borrow money by comparing fees, interest rates and APR. A loan calculator can also be used to determine if refinancing a debt is worth it by comparing the existing debt to the new debt.
A loan calculator will help you understand what terms are being offered by licensed money lenders as the rates offered by these lenders is quite high compared to traditional financing. While they are legally limited to what they can charge, it is important you understand the ramifications of getting a personal or payday or foreigner loan from a licensed money lender. The terms and interest rates make the APR extremely high and missing your payment can spiral you into a financial crisis.
The calculator becomes even more important if you are unable to repay a payday loan or have gotten a personal loan with a more flexible repayment schedule and find yourself unable to repay. The longer the payments are spread out the more interest is charged. When you add in late or roll over fees a loan calculator will help you understand the real cost of the loan and missing the payment or extending the loan.
Technology has brought loan calculators to our fingertips and are educating people as to the real cost of borrowing money either from traditional lenders or licensed money lenders.