Loan quote calculator, how to calculate the total cost of your loan and your monthly repayments.
Loan quote calculator, how to calculate the total cost of your loan and your monthly repayments.
Loan quotes sound complicated, thereís a certain amount of financial jargon to get used to but you can work out your loan costs pretty simply, every loan has an APR (Average Percentage Rate), this is the cost in interest added to the amount of money that your borrowing.
If you have never taken out a loan before you might think that you just have to repay the money that you have borrowed, but thatís not the case, you must also pay interest on the loan, the interest is the cost of the loan, lenders donít give you money for free they do so to make a profit and itís the APR that controls the amount of profit they make.
Letís look at a worked example by calculating how much a loan costs with our calculator, firstly we need to know how much we are borrowing as a totally made up example, lets borrow £6,000 over 3 years with an APR of 12%, now Iíve made these figures up for this example.
So £6,000 borrowed with 12% APR, the total cost of this loan would be £6,000 + 12% = £6,720, so you can see that the total cost of the loan is £6,720 and the total cost of the interest (APR) is £720, so whatís the total monthly cost well that will be £6,720 / 3 years, and 3 years in months is 3 x 12 = 36 months, so the total cost of the loan is £6,720 / 36 months = £186.66, not we can also calculate the total monthly cost of the interest only which is £720 / 36 months = £20 per month, so in the case of this made up example you would be paying £20 interest as a cost of having the loan.
And finally, the total cost of the repayment not including the interest is £6,000 / 36 months = £166.66, so you can see that itís not too difficult to calculate the yearly, lifetime and monthly costs of a loan, you can do all this with a couple of calculations on your calculator.
As each loan has an APR that you used for the calculations itís easy to work out the loan repayments, but there are a few points to not, your often see loan quotations where the APR is quoted as representative or subject to conditions or soft quote or Smart Quote (Money Super Market) or some other variation, unsecured loans will often have these soft quotes or no credit footprint quotes, but because as the loan quotation says the APR is representative and may not be the actual APR that your get when you talk the loan out.
If your comparing loans on the APR rate and the APR rate is not accurate or likely to change then your comparisons are going to be wrong, your think that one loan is better than another because it has a lower APR only to discover that the APR was made up and you canít actually get an APR that low and thatís exactly the case that we have.
Regardless of the accuracy of an APR rate for a quick comparison that shows you which loan is cheaper without even having to calculate anything, just look at the APR, because it is quoted as a percentage of the loan amount and added to the loan a smaller APR number means a cheaper loan, so just look for the lowest APR and that will be the cheapest loan.
Now another point worth noting and that quickly helps you make a loan comparison without having to get your calculator out is to look at the type of loan your being quoted for, there are two main types of loan unsecured loans and secured loans, secured loans will generally always be cheaper than unsecured loans, let me explain why.
An unsecured loan is a personal loan, sometimes called a cash loan, thee loans are where the lender lends you the money in the hoes that your pay the loan back and pay the interest on the loan which makes the lender money, if you canít or wonít pay the loan back then the lender would need to take you to court and start legal proceedings against you to get their money back, but if you donít have any money the lender is unlikely to get any money from you.
Compare that to a secured loan where the loan is secured against something of value, usually your home in the case of a mortgage or your car in the case of a logbook loan, this means that if you canít pay the loan back your home or your car can be repossessed to pay the lender b ack the money that you owe, this of course is the last option before which the lender will have contacted you many times by phone and letter to try to resolve the problem or allow you to renegotiate the loan to make the monthly repayments cheaper for you.
Because there is security of your home or car the lender is more likely to want to lend to you because the lender can always get their money back, obviously the lender would prefer that you pay your loan back each month and continue to make interest payments, but the lender knows that they will not lose money, so the lender will be more interested in lending on a secured loan than an unsecured loan where the lender may well have to write off the loan.
The other point worth noting is that because secured loans are lower risk for the lender the interest rate (APR) that your pay will be lower, a cash loan or a personal loan is high risk for the lender and so they will charge more for the loan (a higher interest rate).
Because unsecured loans are higher risk for the lender, the lender will try to lower that risk by making sure that they only lend to people who are likely to pay the money back and the way the lender determines who is likely to pay the money back is by looking at your credit history, credit reference agencies like Experian, Equinet or Equifax can tell the lender your credit score, this is a score based on how well you handle your money.
If you have always paid your bills on time and never been late with payments or unable to make payments then your have a good credit score, if you have had problems paying bills n time or refused to pay a bill then your have a bad credit score, companies you buy gods and services from will report your non payment or late payment to the credit reference agencies, for example buy a sofa on hire purchase and be unable to pay when you lose your job and find that this no payment has been recorded by the credit reference agencies and lowered your credit score.
Itís not just loans that are recorded by the credit reference agencies but any late or non-payment, for example late rent payment, late electricity bill payment etc, if you have lived with your parents and have not had any bills in your own name then you will have no credit history and an unsecured lender will not want to lend to you as there is no proof that you will pay the money back, of course there is also no proof that you wonít pay the money back, but thatís not how the unsecured lenders think about loan applications.
You might think thatís enough trouble with unsecured loans but there is another problem with unsecured loans and I alluded to that earlier, if every time you applied for an unsecured loan or requested a loan quote the lender or broker went to the credit reference agency to check your credit score you would find that being refused a loan application would lower your credit score because the lender reports all loan applications back to the credit reference agencies.
If your refused a loan then your credit score will be lowered, if you apply for several loans then your credit score will be lowered because you have applied for too many loans, so trying to get an unsecured loan can damage your credit score, the lenders and brokers know this and so they have solved this problem by not submitting your loan enquires to the credit reference agencies instead they look at your loan enquiry and try to guess if you are a good or bad risk and guess what APR you should be given, but now itís a guess so back to our point about calculating the cost of your loan with the APR, your now calculating the loan cost with a guess, thatís unfair because those guesses may very well be a lower APR and your comparing with a higher APR that is at least realistic.
So those are some of the problems with unsecured loans that you might face, the other type of loan is a secured loan, people often think that they have nothing of value that they can secure the loan against, they are a renter and not a home owner or they have a home but it has a mortgage and they donít wat a second mortgage because that has a higher cost of interest (APR) as a second mortgage carries more risk for the lender because if your home is repossessed money is paid out first to the first mortgage so there might not be enough money left to repay the second mortgage.
At this point many people feel like they could never get a loan as they donít have a home of their own and they donít have a perfect credit score, well there is another option and that is a loan against your car, many people own their own car, far more people than own their own home and because with a loan against your car which is known as a logbook loan you get to keep driving and using your car even when you have the loan against your car, logbook loans have proved popular.
You can calculate the cost of a logbook loan by looking at the APR rate as show on the loan quote form, but if you apply online the logbook lender will have broken down the quote to show you how much you are paying in interest each month and how much you can borrow, so with all the facts and figures presented on the loan quote you might not need to do any calculations of your own.
With a logbook loan, the money is secured against your car, the loan quote wonít be a guess like with an unsecured loan quote but it will be the actual loan that you will be taking out if you decide to go ahead, the loan quote will be valid for 3 days, if you havenít chosen to take the loan out after three days and you are under no obligation too then your have to make another loan quote enquiry, which is easy because for an online quote all you need do is enter your cars registration number and then all your and your cars details are looked up online.
A logbook loan is so called because the loan is secured against your cars V5C registered keeper document, i.e. the document that list who owns the car and before this document was called a V5C by the DVLA (Driver and Vehicle Licensing Agency) it was called a logbook because it logs or lists the owner and previous owners of the vehicle and the name logbook loan stuck as its certainly nicer than V5C loan.
You can get a logbook loan quote online, the quote will show you how much the lender is prepared to lend you against your car, that will be the second-hand resale price of your car, the loans available range in size from £250 to £50,000.