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Getting a personal loan can be a very stressful process. This is why it is often recommended to know where your credit score sits so you can have a good idea of what your loan will be and what you can afford before you even apply. One of the easiest ways to help you figure this out is a loan calculator.

Using Spring Financial's Loan Calculator

Using the loan calculator is pretty straightforward. In order to get the most accurate estimate though, you are going to need a rough idea of your credit score. Don’t worry though, by checking your credit score with Credit Karma or Borrowell, you can get a rough idea of your credit score almost instantly. All you have to do is sign up.

Once you have an idea of your credit score, then you select the loan amount you are looking for, what range your credit score is, your ideal term of loan and your payment frequency. Once you have done this, an estimated payment will appear. There will be a range of what your payments will likely be because, without an application and a hard credit check, there is no way to predict an exact interest rate or even if you will be approved for a loan.

Unfortunately, the loan calculator can't tell you whether you will be approved for the loan or not either. All it can do is give you an estimate of what your payments will be if you are approved.

Calculating Personal Loan Payments

In order to calculate the payments on a personal loan, there are a few factors that make a big difference. The first being the total loan amount. After the total loan amount has been decided, then the interest needs to be calculated. There are a few different ways for this to be done.

Simple Interest

In order to calculate for the simple interest method, you need to know the principal loan amount, interest rate and the term of the loan. With a simple interest loan the monthly payment stays the same but the amount of interest put towards the loan is based on how much is left owing. That means the faster you pay off the loan, the less interest you pay.

For example: You are taking out a $7000 loan at 6% with a total loan term of 5 years. In order to calculate the interest you would then take $7000 x 0.06 x 5 which is equal to a total of $2,100 in interest. Once you have done that, then you can calculate the monthly payment. This Calculation is done monthly to determine what goes where. You would start with the total amount of $7000 and then take your interest rate and divide it into days (6/365). Say you are making the payments monthly, you would then multiply this by 30. This would bring your interest for the month to $34.52. This calculation is done every month.

Amortizing Loan

With an amortizing loan, your payments are still fixed but how much the lender applies to interest and principal changes throughout the term of the loan. With this type of loan, the first couple of payments are very interest heavy and as time goes on, less goes to interest and more goes to the principal.

For example: Let's look at the same terms as above. $7000 for 5 years at 6%. You start by breaking the percentage rate down monthly. This would look like 0.06x12=0.005. Next you multiple 0.0005 by what’s left of the loan balance. For the first payment, this would look like $7000x0.005 for a total of $35 in interest on your first monthly payment. If you take away that amount from what your monthly payment is then you know what your principal payment is. This can be done every month.

Term of the Loan and Payment Schedule

After the interest has been figured out, the next factor in determining your payment is the term of the loan. The longer you have the loan, the smaller the payment will be. Your payment schedule will also affect the payments. Monthly payments will be the largest. Next are semi monthly payments (twice a month on the same day) and then biweekly payments. Because biweekly payments have two more payments per year than semi-monthly, they are slightly cheaper. While there are a few options, your lender will generally choose what your payment is based on when you get paid. They prefer for you to make the payments on their payday to ensure that they get their money before it is spent elsewhere.

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