Loan Calculator – How It Works?

Loan Calculator - How It WorksLoan calculator is your simple assistant in the selection of loan patterns. With the help of such a service, you can quickly find a loan online and estimate the possible terms and rates. Preparing for a loan will allow you not to find yourself in a situation where delays put too much pressure on your budget and threaten to ruin your relationship with the bank.

How does the simple loan calculator work?

The easiest way to calculate a loan is to use a simple online loan calculator. It applies the parameters you set to all programs, creates a schedule of monthly contributions, and also puts on the page the best offers that fit your requirements.

To use the service, you need to:

  • enter the amount you need and select the loan currency;
  • set a due date;
  • enter the interest rate you are counting on;
  • specify the estimated date of issue;
  • choose a payment scheme – annuity (that is, in equal installments) or differentiated payments;
  • add early repaymentsif necessary.

When you submit your request, the loan calculator will set the loan based on your parameters and present a summary of it. It indicates the amount of monthly payments, the total amount and the amount of accrued interest. You will also see how much of the contribution will go to the principal debt, and how much to the loan cost, as well as the debt balance after each payment.

Annuity or differential payment?

What are the impact of repayment schemes (simple payment calculator) and which one is more profitable? The scheme used depends on the amount of your monthly installments, the total overpayment on the loan and what the payment consists of.

The annuity scheme implies that payments are calculated in equal installments for the entire duration of the agreement. Thus, if you took out a loan for 12 months, then every month you will pay the same amount. However, there is an important point: at first, most of the contribution consists of interest accrued. That is, first you pay the bank for the service provided, and only then the interest of the loan.

The differentiated payment is calculated in different ways. Its size will change daily, and the shares of the principal and interest in it are the same. The calculation is carried out in such a way that the body of the debt (that is, the amount you received) is divided by the number of months, and the interest is charged on the balance and recalculated after each installment.

This scheme is considered the most beneficial for the borrower, because it turns out that the overpayment will be insignificant. But there is also a drawback – at the beginning of the term, payments will be the largest, which means they can become a complication for the borrower’s budget.

Which payment scheme should be chosen?

It only depends on how you assess your financial ability. If your monthly income allows you to give large enough amounts to pay off debt, and you want to save on interest, feel free to choose a bank with a differentiated calculation scheme. If your income does not allow this, it is better to overpay – this way you reduce the risk of delays and penalties.

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