Loan Calculator
Understanding loans and loan payments is critically important for young people as they embark on major life decisions that often involve borrowing money. This includes financing higher education, cars, homes, and even starting small businesses.
Loans allow you to access lump sums of money upfront in exchange for paying that money back plus interest over time through a series of monthly payments. The interest rate determines how much extra you pay on top of the principal loan amount. Understanding how interest accrues over long repayment terms, sometimes decades on mortgages, ensures young borrowers realize the true total costs of borrowing.
Additionally, grasping loan terminology like APR, loan origination fees, credit checks, and amortization schedules puts power in the hands of youth to compare offers, negotiate terms, minimize fees, and accelerate payoff timelines. Learning how missing, late or only making minimum payments penalizes borrowers through more interest and damaging credit scores informs responsible actions too.
Ultimately, knowledge leads to better borrowing choices. Young generations that prioritize financial literacy around loans, interest accrual, good credit-building and maintaining healthy debt-to-income ratios will reap dividends through greater access to affordable financing options in the future.
If you are looking at getting a loan and want to understand it more you can use our loan calculator and description of what is all means below.
Terminology
The interest rate is one of the most important numbers to understand when taking out a loan, as it will determine just how much borrowing money will cost you overall.
Specifically, the interest rate refers to the proportion of a loan that is charged as a percentage of the principal amount borrowed. It is typically expressed as an annual rate. For example, if you take out a £10,000 loan with a 6% interest rate, this means you will be charged £600 per year on top of the original £10,000 principal.
There are two types of interest rates.Â
Fixed rate loans lock in an interest rate that remains constant over the full repayment term, such as 5% interest over 30 years on a mortgage. This provides reliable predictability in loan costs each month regardless of external market fluctuations. Even if other rates rise considerably, your loan maintains the same fixed rate.
Meanwhile, variable rate loans are tied to benchmarks like the prime rate or an Index. So the interest rate fluctuates up or down over time as underlying indexes change. For example, you may start at 4% interest but could then see this slide to 4.5% or dip to 3.5% over the loan based on economic conditions.
APR (Annual Percentage Rate) – This represents the true yearly cost of borrowing money including the interest rate plus any additional charges or fees. Comparing APR helps identify the most affordable financing options.
For example, if you take out a £20,000 auto loan over 5 years at 6% stated interest rate, this doesn’t provide the full picture of costs. You need to consider associated origination fees of £500 charged by the lender to process the loan application.
In this case, the APR factors in both the 6% yearly interest AND the one-time fee spread out over the payment term. So it will be slightly higher than 6%, perhaps 6.1% or 6.2% APR.
Amortisation is he process of gradually paying off a loan over time through regular principal and interest payments.
Term – The amount of time established in the loan contract to repay the debt. Common terms are 15/20/30 years.
Finance Calculators
Unsure what your take-home pay will be? Our user-friendly paycheck calculator help estimate and understand all factors to your income per month and year after deductions. Calculate here
Want to reach your savings goals faster but not sure how to calculate different types of interest? Use our customisable savings calculator to create a results-driven savings plan here.
One of the biggest costs most people ever buy, is a house. With house prices consistently increasing along with turbulent interest rates and added costs, it’s hard to know what the full cost of a house it. Use calculator
