Without taking out loans, many of us would not be able to buy a home, a car or afford a higher education. The fact is, mortgages, auto loans and other types of loans can help us to advance and reach important goals in our lives.
The cost of a loan depends on the type of loan, the lender, the market environment and your credit history and income. Borrowers with the best credit profile usually get the best interest rates. Before you shop for a loan, find out your credit score and look at your credit report to make sure it’s accurate. You can get your credit report and credit score for free on Bankrate.
All loans are either secured or unsecured. A secured loan requires the borrower to put up an asset as collateral to secure the loan for the lender. An auto loan is an example of a secured loan. If you don’t make your car payments, the lender will repossess the car. An unsecured loan requires no collateral. Most personal loans are unsecured.
While shopping for any loan, it’s a good idea to use a loan calculator. A calculator can help you narrow your search for a home or car by showing you how much you can afford to pay each month. It can help you compare loan costs and see how differences in interest rates can affect your payments, especially with mortgages.
The right loan calculator will show you the total cost of a loan, expressed as the annual percentage rate, or APR. Loan calculators can answer a lot of questions and help you make good financial decisions.
Here are some details about the most common types of loans and the loan calculators that can help you in the process.
Bankrate’s mortgage calculator gives you a monthly payment estimate after you input the home price, your down payment, the interest rate and length of the loan term. Use the calculator to price different scenarios. You might discover you need to adjust your down payment to keep your monthly payments affordable. You can also see the loan amortization schedule, or how your debt is reduced over time with monthly principal and interest payments. If you want to pay off a mortgage before the loan term is over, you can use the calculator to figure out how much more you must pay each month to achieve your goal.
Other mortgage calculators can answer a variety of questions: What is your DTI, or debt-to-income ratio? That’s a percentage that lenders look at to gauge your debt load. Should you take out a 15-year mortgage or a 30-year? Fixed interest rate or variable?
It’s critical to nail down the numbers before buying a home because a mortgage is a secured loan that is secured by the home itself. If you fail to make the monthly payments, the lender can foreclose and take your home.
Home equity loan
Home equity loans, sometimes called second mortgages, are for homeowners who want to borrow some of their equity to pay for home improvements, a dream vacation, college tuition or some other expense. A home equity loan is a one-time, lump-sum loan, repaid at a fixed rate, usually over five to 20 years. Bankrate’s home equity calculator helps you determine how much you might be able to borrow based on your credit score and your LTV, or loan-to-value ratio, which is the difference between what your home is worth and how much you owe on it.
Home equity line of credit (HELOC)
A HELOC is a home equity loan that works more like a credit card. You are given a line of credit that can be reused as you repay the loan. The interest rate is usually variable and tied to an index such as the prime rate. Our home equity calculators can answer a variety of questions, such as: Should you borrow from home equity? If so, how much could you borrow? Are you better off taking out a lump-sum equity loan or a HELOC? How long will it take to repay the loan?
An auto loan is a secured loan used to buy a car. The auto loan calculator lets you estimate monthly payments, see how much total interest you’ll pay and the loan amortization schedule. The calculator doesn’t account for costs such as taxes, documentation fees and auto registration. Plan on adding about 10 percent to your estimate.
A student loan is an unsecured loan from either the federal government or a private lender. Borrowers must qualify for private student loans. If you don’t have an established credit history, you may not find the best loan. Bankrate’s student loan calculator will show you how long it will take to pay off your loan and how much interest it will cost you. The college savings calculator will help you set savings goals for the future.
A personal loan is an unsecured, lump-sum loan that is repaid at a fixed rate over a specific period of time. It is a flexible loan because it can be used to consolidate debt, pay off higher-interest credit cards, make home improvements, pay for a wedding or a vacation, buy a boat, RV or make some other big purchase. The personal loan calculator lets you estimate your monthly payments based on how much you want to borrow, the interest rate, how much time you have to pay it back, your credit score and income.
If you have good to excellent credit, aren’t weighed down by a lot of debt and have assets or a steady income, you can probably qualify for most any type of loan. Use loan calculators to answer your questions and help you shop and compare so that you get the best loan at the best price and terms for your budget.
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