As things stand in the world, most of us know how important loans are. It’s almost impossible to make larger purchases such as buying a home or a car without one, even here in Norway. This does raise several questions, though, as you can probably imagine.
For one thing – how are we meant to apply for loans? How can we actually be approved for them? These are both questions that are difficult to answer to a certain extent, especially for those of us who aren’t necessarily involved in the world of finance and economics.
Today, we’ll be doing our best to cover the answers to those questions and more. Even once we are confident that we’ll be approved for a loan, it can be hard to know how to proceed from there, right? Interest rates and the like are quite stressful to contend with. Knowing how they’re calculated can be a big step, even.
We’ll be covering most of what you need to know to prepare yourself for the world of loans. Consider checking out this website to get more information if you’d like just in case, you still have questions after. For now, though, let’s discuss what you need to know about loans and loan calculators for personal ones.
What are Personal Loans?
Our first order of business here today will be to define what personal loans are. Now, if you’re not familiar with them, don’t worry – we’ll start with the basics. As you may already know, loans are an agreement between a lender and a borrower in which the borrower is given funds. It’s established in a contract, and it’s expected that the full amount will be paid back, plus interest.
Simple, right? Personal loans are really just a step up from that – it’s the same concept, but when done only with individual borrowers rather than a business or corporate entity. This means that it includes anything from a mortgage to an auto loan to a private loan. As you can see, they’re pretty commonplace these days.
What Can You Use a Personal Loan for?
As a brief aside, let’s discuss what we can use these sorts of loans for. You may have already guessed it, but there’s almost no limit to what you can do with them. Obviously, the specifics in terms of what you’re restricted from using the funds for will be outlined in the contract that you make with your lender.
While it may sound surprising, a lot of folk use them for things such aswedding planning and vacationing. What we would like to emphasize there, though, is that they should only be used for purposes like this if you are certain that you can pay the money back without it causing stress or forcing you to adjust your current standard of living. Otherwise, that likely isn’t a great idea.
There are, of course, more practical uses as well. Another common one is for use in home renovations since that’s one method of increasing the value of our properties. In that sense, many folks who use a credit agreement to achieve this consider it to be an investment rather than just money spent on something somewhat frivolous.
At the end of the day though, we can really use a credit agreement for whatever we want. The most important thing is to borrow money responsibly. That way, we can ensure that we’ll know we’re able to pay everything back, which is quite critical. You can read more on that here: https://www.journals.uchicago.edu/doi/abs/10.1086/452613.
Loan Terminology
Now, before we can delve into how a loan calculator works, you’ll probably want to be familiar with the terms and phrases that will come into play. After all, when you are using a calculator, it will give you information such as estimates of repayments and interest rates. However, if you don’t know what that means, it won’t be much use for you.
Interest Rates
We’ll start off with the basics: interest rates. To put it simply, interest rates are the percentage that we as borrowers are charged in order tobe allowed to take out a loan. The specific percentages vary a lot, though, which is part of why calculators are so helpful. Let’s not get too far ahead of ourselves, though!
There are two different types of interest when we talk about the “main” ones, at least. These are compound and simple. We’ll start with the latter.
“Simple” interest is, well…pretty easy to understand, as the name implies. It’s when the percentage is calculated using the original, principal amount of the loan, and nothing else. Principal amounts are just the original amount that gets borrowed in a credit agreement. So, you won’t have any unexpected upcharges (at least, most of the time) if you have a simple interest rate.
Unfortunately, most credit agreements don’t use this model. Instead, they use compound interest, which is calculated by both the interest that has already been accrued as well as the principal amount. Generally speaking, this means that as borrowers, we’ll be paying more. Naturally, that’s why most lenders opt for it.
If given the choice, most would probably recommend that you go for the simple option. However, this tends not to be an option, so just keep in mind that your rate will likely be compounded. This can factor into the way that you use a calculator, which is why we mention it. You can learn more on this page.
What are Loan Calculators, then?
Now, let’s discuss what a loan calculator is. Typically, they’re found on external websites rather than the lenders’ pages specifically, but that isn’t necessarily a hard and fast rule. The important thing here is that they can help you get a mostly accurate prediction of how much you’ll be paying for a loan in the long term.
Just know that you’ll be responsible for plugging in the “basic” details up front. So, this will likely include the name of the lender that you’re considering, how much that you’re looking to borrow, and some personal details.
What personal details, though, you’re probably wondering? One of the primary things is your credit score. If you aren’t already aware of this before entering the process, it’s something that you should check on as soon as possible. Your credit score will determine what loans you’re eligible for in the first place, as well as help get an estimate of what your interest rates will be.
Now, these are calculated by major credit bureaus across the world, so they’ll keep track of what your repayment schedule is like, how often that you pay bills on time versus late, and more. That’s how it’s tracked – it’s a record of your past credit agreements to give lenders anidea of what to expect if they get into a contract with you.
That is pretty much what you need to start using a calculator – from there, it’s as simple as plugging in the information that’s requested and getting a quote for what your repayments and interest rate could turn out to be based on what you input. Then, you can get a sense of what you can expect once you get approved.
Is it Worth Using a Calculator? Are Loans Worth it at all?
On a final note for today, let’s take a look at how worthwhile both using calculators as well as borrowing money are. Of course, these questions go somewhat hand in hand, so let’s start with the former issue. If you do decide to apply for a credit agreement, it doesn’t hurt to be as prepared as possible when you go into the process.
Naturally, a part of that is to know what sorts of rates that you might be offered. This goes both for interest as well as how much you might have to pay each month for the bills. After all, those monthly statements will have a pretty big impact on how much you’ll be paying, so it’s good to be aware of that and keep it in mind. These estimates can help you figure out if it will be worth it for you and your family to borrow money at the moment.
So – that answers a part of the “are loans worth it at all” conundrum, but not all of it. The other thing that we’d like to highlight here is that they’re pretty much as worthwhile as we make them. So, if we’re borrowing money to purchase a home, for instance, it’s hard for most people to say that it isn’t worth it.
However, when we take out a credit agreement to pay for a wedding, that might be seen as questionable by some people. Seeing as this is a judgement-free zone, we would encourage you to borrow money for whatever reasons you want so long as you are doing so responsibly. In that sense, you can see why most people would certainly consider getting a loan to be worth their while.