Credit is absolutely pants if you’ve got good enough reports to secure the best rates. Unfortunately, following the credit crunch, not that many of us are able to get those rates. That means we end up paying a little or a lot more on our credit purchases. How much depends on what we’ve been buying, and of course how good (or bad) looking our file with the credit reporting agencies might be.
But no matter how good your report is you’re still paying interest on anything you’ve borrowed. How much interest depends on quite a few factors, and simple math doesn’t easily express it. For example, if your loan is based on a yearly finance rate calculated monthly against what you owe, then any time you pay off a little extra, it will reduce your total due and the interest of every other payment going forward. In this case, you can’t easily figure out your total savings. However, using a loan repayment calculator will let you keep track of what you owe.
Below are six reasons you should be using a loan calculator:
1) Tracking Variable Interest Rates: There is no better way to track variable interest rates than using a loan calculator. This is because you’ll be able to instantly see the total amount to pay off your loan, interest paid, or interest that will have been paid by the time you pay off the loan. That means if you have a little extra to pay one month, you can pay it, and see how much that payment will benefit you over the life of your loan in terms of saved interest. Pay enough little extra amounts, and you’ll end up paying entire months off the end of your loan.
2) Protecting Your Good Interest Rate: Even the best loans have schemes and other hidden triggers that can drastically adjust your interest rate. All it takes is a missed payment, and the new scheme is applied. Using a loan calculator, you can make sure you fully understand why it is so important to never miss a payment. Better, you can remind yourself of just how much missing one payment will cost you in extra interest over the life of your loan.
3) Planning Other Purchases: Too often a loan payment can drag down our finances and prevent us from putting money into other things we’d rather be spending it on. These things can include short weekend trips, catching a show or concert, and even having a longer holiday or vacation. The benefit of a loan calculator is that we can see when we’ll have paid a loan down enough to look past it and start making the purchases we want, instead of the ones we need.
4) Building Credit Quickly: Not that many people know it, but the ideal time for credit reporting agencies to give high marks on a credit report is two years. Less than that doesn’t show enough history, and more is just a waste of money on unnecessary interest payments, unless it’s a mortgage, but that’s another topic entirely. With a loan calculator, you can test converting an unnecessarily long five-year loan into a shorter two-year loan, and see if it’s something you can still afford. You’ll also be able to compare your savings in interest over five years versus two years. Knowing what you can save is a great motivator to get a shorter loan term and pay you’re your loan sooner, rather than later.
5) Deciding on a Loan Type: You can get a fixed interest rate loan, or a floating rate loan. A fixed rate means that you always pay whatever amount of interest was agreed to the lender. Variable rates are different though. Sometimes you might pay more, and other times you could pay less. With a loan calculator, you don’t have to guess. You can calculate your payments with or without the rates, and see how the numbers really look. Often you’ll find that the rates are much different than you thought, and that the bank is doing better than you, even when you thought you were ahead of the bank.
6) Choosing a Payoff Date: When you know exactly how much you’re paying, and more importantly, what you’ll be saving by paying your loan down early, you can choose a payoff date that works best for you. On example is paying a loan off in October, so that you can be ready by December for Christmas purchases. Other times, you may want to stretch it out. In these cases, you might not pay off your loan early, instead electing to stretch it out aver a few more months. This way you can comfortably make any necessary purchases, without potentially harming your credit by missing payments or overextending yourself.
All loans always require prompt payment, but the payment isn’t always the same, especially if you get creative with your repayment options and pay more each month, or bump payments around.
By understanding not just where you are with your loan repayment, but also where you could be, you’ll be in a much better position to make sound financial decisions. This will let you save money and pay down your loan faster.
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