Throughout your life, you’ll have plenty of expenses to consider. Some are smaller and can be paid for easily. Others are more costly and may need to be financed over time with the help of a loan.
If you’re in the market for a loan, our loan calculator can help you calculate your cost of borrowing. By estimating your monthly payments, you can determine your budget to keep your finances in check.
Key Points
- A loan calculator is a tool that helps you estimate monthly loan payments, total interest, and overall loan cost.
- The answers that loan calculators provide are based on information such as the loan amount, interest rate, and loan term.
- You can use a loan calculator to figure out how long it’ll take you to pay off your loan.
How Does A Loan Calculator Work?
A loan calculator is a fast and convenient tool to estimate the cost of financing. By entering a few key details, you can get a quick and clear picture of your projected loan payments.
To use Loans Canada’s loan calculator, follow these simple steps:
Step 1: Choose Your Credit Rating
Select the credit score range that best reflects your current financial standing. This helps estimate the interest rate you may be offered:
- Poor
- Fair
- Good
- Very Good
- Excellent
If you’re unsure about your current credit rating, use a free credit score checker, like CompareHub.
Step 2: Choose Your Loan Amount
Enter the loan amount you wish to borrow.
Step 3: Pick Your Loan Duration
Decide on the length of your loan term, as this affects both your monthly payment and total interest.
Step 4: Click “Calculate”
Once all fields are filled in, hit the “Calculate” button. The tool will display a breakdown of your loan details, including:
- Total number of installments required to pay off the loan.
- Monthly payment amount, covering both principal and interest.
- Total interest cost over the life of the loan.
- Overall loan cost, which includes the full repayment amount—principal, interest, and any applicable fees.
Step 5: Review And Apply
If the estimated payments fit your budget, you can proceed by clicking the “See if you qualify” button to begin the pre-approval process.
Borrow Up To $50,000
Why Your Credit Score Matters When Calculating The Cost Of Borrowing?
The strength of your credit is a crucial factor in the approval process, as it indicates your likelihood of making payments as agreed. Since good credit usually means you have less chance of defaulting, lenders will be more likely to approve you for a larger loan, a lower rate, and a more adjustable plan.
Although every lender has different standards and some don’t perform credit checks at all, it’s best to have your score within the 650-900 range before you apply to see the most positive results.
| Tip: Improve Your Credit Here are a few things you can do to help improve your credit score: – Regularly check both versions of your report for errors and have them rectified. – Complete your payments as scheduled and avoid defaulting at all costs. – For credit cards and lines of credit, make minimum payments when you can’t afford full ones, but avoid using more than 30-35% of your available credit limit. |
Why Use A Loan Calculator?
Using a loan calculator is helpful for a couple of key reasons:
Calculate Different Loan Payment Options
If you’re comparing loan options from different lenders and receive different quotes, a loan calculator can help you choose the better option.
For example, let’s say you want a $10,000 loan and are quoted a 30% rate with a 3-year term, and a 15% rate with a 7-year term. Loans Canada’s loan calculator will help you quickly determine which option is most affordable:
| 15% Rate, 7-Year Term | 30% Rate, 3-Year Term | |
| Monthly Payment | $192.97 | $424.52 |
| Total Interest | $6,209.27 | $5,282.57 |
| Total Loan Cost | $16,209.27 | $15,282.57 |
Interestingly, the second option actually comes with nearly $1,000 saved over the life of the loan, despite being double the interest rate.
Find Out How Much You Can Afford And At What Rates
If you have bad credit and are expecting to pay a high interest rate, you can use a loan calculator to estimate how much you can afford at different rates and terms.
For instance, let’s say you can afford $200 per month and are expecting a rate of 20%. Using a loan calculator, you can see different loan amounts you may be able to afford based on various loan terms:
| Term Length | Maximum Loan Amount |
| 1 Year | $2,159 |
| 2 Years | $3,930 |
| 3 Years | $5,382 |
| 4 Years | $6,572 |
| 5 Years | $7,549 |
What Affects Your Loan Cost?
Generally speaking, the following factors will directly influence the overall cost of your loan:
- Interest Rate: This represents the cost of borrowing money, and is usually expressed as a percentage. The rate you’re charged is affected by your credit score, loan type, and market conditions. That said, the APR (annual percentage rate) provides a more accurate picture of your total loan cost, including the interest rate plus any applicable fees.
- Loan Fees: Besides interest, other fees may be tacked on to your loan, such as:
- Origination fees
- Application fees
- Early prepayment penalties
- Late payment fees
- Loan Term: Longer loan terms mean lower monthly payments, but more interest paid overall. Shorter terms cost less in interest, but come with higher monthly payments.
- Loan Amount: The more you borrow, the more you’ll need to pay back.
| Note: Watch Out For Loan Scams When comparing loans, it’s vital to research your potential lender properly. This is because there are many predatory organizations and fraudsters seeking to exploit your need for credit. Here are a few potential red flags to watch out for: – Upfront Fees Required. One way they may do this is by charging “loan insurance” in exchange for a substandard or totally fake loan. No legitimate lender will ever ask for it before depositing your loan since such demands are illegal. – Guaranteed Approval. Even easily accessible loans, like payday loans, involve some level of vetting of the borrower. Any lender that guarantees loan approval without reviewing the borrower should be avoided. |
Learn How To Qualify For Other Loan Amounts
How To Budget For Your Loan Payments
Remember, a loan can put you in debt for a long time, so it’s essential to come up with a sound financial plan that suits your situation and ensures you can meet all financial obligations.
Use A Loan Calculator
We’ve provided a handy loan calculator that’s easy to use. Simply plug in a few pieces of information about your current financial/credit profile and your financial needs, and the calculator will quickly populate how much your monthly payments will be, as well as the total loan cost.
Calculate Your Monthly Income
Add up all sources of income, including your salary, freelance work, government benefits, and others. Use your net income to get an accurate picture of what you have available to spend.
Track Your Monthly Expenses
Categorize your spending into essentials and wants. This will tell you how much of your earnings are currently dedicated to current expenses. Then, deduct this from your income to determine how much you have available to spend on monthly loan payments.
Pay Down Your Debt
Reducing your debt load is vital if your DTI ratio is high. There are several ways to approach debt repayment, including the following popular methods:
- Avalanche Method: Pay off loans with the highest rate first to limit overall interest charges.
- Snowball Method: Pay off the smallest loan first for quick wins and motivation.
Learn more: Snowball Vs. Avalanche Debt Repayment Method
Automate Your Payments
Set up automatic transfers to avoid missing due dates and accumulating late fees. This can also ensure that you stay consistent and build a positive payment history.
Use Budgeting Apps
To simplify budgeting, consider using a budgeting app, like YNAB. These tools can help you visualize your progress and stay on top of your finances.
How To Find The Right Loan
Finding a financing option that best suits your needs and your financial/credit profile is a crucial first step. Consider the following when determining which loan to apply for.
Determine Why You Need A Loan
Identify why you need the loan — whether it’s to buy a home, purchase a vehicle, consolidate your debt, cover an emergency expense, and so forth. The goal is to determine the most suitable loan type for your situation.
Decide How Much You Need To Borrow
Determine the exact loan amount required for your particular financial situation. It’s important to borrow only what you need, as borrowing more will only add unnecessary debt.
Assess Your Financial & Credit Situation
Review your income, expenses, current debts, and credit score. This will help you understand what you can afford and what you may be eligible for. You can check your credit score for free using Loans Canada’s CompareHub tool.
Comparison Shop
Shop around and compare lenders and their offers. More specifically, be sure to compare interest rates, loan repayment terms, and fees. Even a slight difference in interest rate can save you thousands over time. Loans Canada makes this easy by providing a comparison platform that will quickly populate a list of lenders and loan offers based on your financial and credit profile.
| Lender Types You can choose a prime source, such as a major bank or credit union, where getting approved is a bit more challenging, but the loan conditions are more favourable. You can also apply with a subprime institution, like a private lender, where approval standards are more lenient and loans are slightly higher in cost. If you have a low income and/or bad credit, you can still get approved for a subprime loan. However, you need to know that lenders see your situation as riskier. Your loan is likely to be smaller, have a higher interest rate, and have a less negotiable repayment plan. |
Final Thoughts
Using a loan calculator helps you estimate monthly payments and the full cost of a loan before signing on the dotted line. With numerous loan options to choose from, it’s important to assess your needs and the options available to ensure you commit to the right one for you. Utilize all the tools available to you to ensure you make an informed financial decision.