Comparison calculator for several loan offers. Ability to calculate and compare up to 4 different loan offers based on monthly payment amounts. This loan calculator can be used for a clear comparison of the loan offer, but for different terms.
Nearly all loan structures include interest, which is the profit that banks or lenders make on loans. Interest rate is the percentage of a loan paid by borrowers to lenders. For most loans, interest is paid in addition to principal repayment. Loan interest is usually expressed in APR, or annual percentage rate, which includes both interest and fees. The rate usually published by banks for saving accounts, money market accounts, and CDs is the annual percentage yield, or APY. It is important to understand the difference between APR and APY.
A loan term is the duration of the loan, given that required minimum payments are made each month. The term of the loan can affect the structure of the loan in many ways. Generally, the longer the term, the more interest will be accrued over time, raising the total cost of the loan for borrowers, but reducing the periodic payments.
There are two basic kinds of consumer loans: secured or unsecured.
A secured loan means that the borrower has put up some asset as a form of collateral before being granted a loan. The lender is issued a lien, which is a right to possession of property belonging to another person until a debt is paid. In other words, defaulting on a secured loan will give the loan issuer the legal ability to seize the asset that was put up as collateral. The most common secured loans are mortgages and auto loans. In these examples, the lender holds the deed or title, which is a representation of ownership, until the secured loan is fully paid. Defaulting on a mortgage typically results in the bank foreclosing on a home, while not paying a car loan means that the lender can repossess the car.
Lenders are generally hesitant to lend large amounts of money with no guarantee. Secured loans reduce the risk of the borrower defaulting since they risk losing whatever asset they put up as collateral. If the collateral is worth less than the outstanding debt, the borrower can still be liable for the remainder of the debt.
Secured loans generally have a higher chance of approval compared to unsecured loans and can be a better option for those who would not qualify for an unsecured loan,
An unsecured loan is an agreement to pay a loan back without collateral. Because there is no collateral involved, lenders need a way to verify the financial integrity of their borrowers. This can be achieved through the five C's of credit, which is a common methodology used by lenders to gauge the creditworthiness of potential borrowers.
Character: may include credit history and reports to showcase the track record of a borrower's ability to fulfill debt obligations in the past, their work experience and income level, and any outstanding legal considerations.
Capacity: measures a borrower's ability to repay a loan using a ratio to compare their debt to income.
Capital: refers to any other assets borrowers may have, aside from income, that can be used to fulfill a debt obligation, such as a down payment, savings, or investments.
Collateral: only applies to secured loans. Collateral refers to something pledged as security for repayment of a loan in the event that the borrower defaults.
Conditions: the current state of the lending climate, trends in the industry, and what the loan will be used for.
Unsecured loans generally feature higher interest rates, lower borrowing limits, and shorter repayment terms than secured loans. Lenders may sometimes require a co-signer (a person who agrees to pay a borrower's debt if they default) for unsecured loans if the lender deems the borrower as risky.
If borrowers do not repay unsecured loans, lenders may hire a collection agency. Collection agencies are companies that recover funds for past due payments or accounts in default.