The Australian personal credit fell from 12% in 2009 to 6% a decade later, while mortgage lending doubled during the same decade. The dramatic fall has motivated bankers to cut interest rates on personal loans, prompting more people to apply for them.
This led to a steady rise in personal loan applications. For the customer’s convenience, banks also provide a personal loan repayment calculator on their website. You can use this to understand what amount of loan you should get, and how much your weekly, bi-weekly, or monthly instalments would be, based on your estimated interest rate.
If you have wondered what a personal loan calculator is and how it works, then you have landed at the right place. This article provides details of what this calculator is, how it works, what you need to do, and what the results indicate.
What Is A Personal Loan Repayment Calculator?
When you apply for a loan, you want to know if you can afford the monthly payments. This calculator is designed for exactly the same purpose. It gives you the details of your monthly payment once you enter details such as loan amount, tenure, payment frequency, and interest rate. Some calculators even require you to enter your credit score to provide you with a more accurate number.
These calculators are available on banks and other financial websites relevant to personal loans. They run on algorithms that use the bank’s loan terms and the data you enter to provide you with your repayment estimate.
How Does It Work?
The calculator uses a set of algorithms that combine your needs with the bank’s terms and conditions for a personal loan and give out a repayment amount. You can pick the loan tenure, the loan amount, the payment frequency, and enter your credit score.
Using your credit score as a base, the calculator will decide the interest rate you are eligible for. Then it will consider the amount you need and the period within which you intend to repay it. Finally, it will consider your payment frequency.
It then uses all of the above to calculate your repayment amount. Most banks let you choose between weekly or monthly repayment schedules, so you can decide the budget and plan accordingly.
For example, you need a loan of $10,000 and plan to repay it in 24 months. If your credit score is 650 and you plan to make fortnightly payments. Based on these details, you will be charged an interest rate of 12.99%, and your bi-weekly payment will be about $218.85.
If your credit score is better, your interest rate will reduce to 4.99%, and your bi-weekly payments will be only $202.25. THis way your credit score might help lower the interest rates.
What Do You Need To Do?
All you need to do is enter all details such as the loan amount you need, the period you can repay it within, the payment frequency, i.e., weekly, fortnightly, or monthly, and your credit score.
Once you’ve entered these details, the calculator will give you your payment details. A personal loan repayment calculator will estimate the amount, but the exact amount will be subject to the bank’s assessment of your application.
The condition is that you have entered your credit score accurately. If you exaggerate your credit score, you will get a lower payment, but when you apply for the loan, the payment will be higher as the bank will obtain your actual credit score from the credit reporting agency. Therefore, an essential point to note is that you need to enter your details accurately.
What Do The Results Mean?
The results that the calculator provides are estimates based on simple mathematical calculations. Your banker may have an additional establishment fee or other charges that this calculator will not include.
Also, the calculator is based on the information you provide. Inaccurate information will only provide erroneous results. Therefore, while such calculators are a good way to get estimates of your payments, you need to check with your banker about the exact amount you will pay.
How Accurate Is The Calculator?
The calculator is pretty accurate. Yet, you may get a different quote from your banker. This is primarily because of your credit history. The calculator is designed only to consider your credit score and pegs your interest rate based on the score.
The bank, however, will do a more meticulous check of your credit history and consider other factors when determining your interest rate.
This includes your past debt repayment and how much current debt you have. They will also account for your income, expenses including any loan payments, your assets, and outstanding debt. This will help them decide how viable a candidate you are, and your interest rate is based on these conditions.
No matter how low, your lender will still charge you a fee for processing your application. These can be in the form of a one-time establishment fee or a monthly service fee. These fees may be negotiable, and depending on your credit history, your banker may waive the fees either partly or wholly.
Also, these fees may be collected upfront or included in your monthly payments and thus not included in the loan calculator. As a result, the amount you see on the calculator will differ from the amount quoted by the banker.
Does A Calculator Run A Hard Credit Check?
Most people know that every time there is a credit inquiry, it shows up on your credit report. More inquiries for a personal loan means more rejection, which can affect your credit score. Therefore, the calculator is designed to ensure that it does not run a credit inquiry.
The credit check is done only when you actually apply for the loan. So you don’t have to worry about an inquiry showing up on your credit report every time you use a personal loan repayment calculator.
There has never been a great time to apply for a personal loan, with interest rates being lower than what most banks used to charge.