What is a loan calculator?

A loan calculator helps you estimate the costs when taking out a loan. You get details about monthly payments, total interest charges, and the overall cost of the loan.

Inputting variables like the loan amount, interest rate, and loan term (the length of time to repay the loan) lets you quickly calculate:

• How much you’ll need to pay each month
• How much you’ll repay in total over the life of the loan

Key inputs:

• Loan amount - The total amount of money you borrow
• Interest rate - The percentage charged by the lender for borrowing the money
• Loan term - The duration of the loan, typically in months or years
• Down payment (optional) - The initial amount you pay upfront to reduce the total loan amount
• Additional Fees (optional) - Some calculators may allow you to input extra fees, such as insurance costs for home loans

Key outputs:

• Monthly payment - The amount you'll pay monthly, including the principal and interest
• Total interest paid - The total amount of interest you’ll pay over the life of the loan
• Total loan amount - The final amount you’ll repay, including the loan principal and the interest charges
• Amortization schedule - Some calculators have an amortization schedule (how much of each monthly payment goes toward the principal and how much goes toward interest over time)

Popular types of loans

Several loan types are popular for different reasons. Here are some of the most popular types of loans.

Personal loans

These are unsecured loans used for various purposes, such as:

• Consolidating debt
• Financing home renovations
• Covering emergency expenses

Features of personal loans are:

• No collateral required
• Typically fixed interest rates
• Set repayment terms ranging from 1 to 7 years

Mortgage loans

Specifically designed for purchasing or refinancing a home or property, mortgage loans are among the most popular.

The key features are:

• Long repayment terms (usually 15-30 years)
• Can be fixed or adjustable interest rates
• Requires collateral (the home)

Common types of mortgage loans:

• Fixed-rate mortgage - Same interest rate throughout the loan term
• Adjustable-rate mortgage (ARM) - Interest rate varies based on market conditions

Auto loans

These loans help you finance the purchase of a new or used vehicle.

Some features of auto loans are:

• Usually secured by the vehicle itself
• Repayment terms of 2-7 years and fixed interest rates

People commonly use auto loans to buy vehicles like cars, motorcycles, or campervans.

Student loans

A student loan helps cover the cost of education.

Here are some typical features of a student loan:

• Can be federal or private
• Typically has lower interest rates
• Repayment plans often start after graduation

Standard types of student loans:

• Federal student loans - Offered by the government with borrower-friendly terms like income-based repayment plans
• Private Student Loans - Offered by private lenders with terms based on the borrower’s credit

Paying for tuition, textbooks, housing, and other educational expenses are common uses for student loans.

Home Equity Loans

With this type of loan, borrowers use the equity in their home as collateral. You may also hear this referred to as a second mortgage.

Key features are:

• Fixed interest rates
• Lump-sum disbursement
• The home serves as collateral

Major home renovations, debt consolidation, and large purchases are popular uses for home equity loans.

Small Business Loans

These help entrepreneurs and small businesses finance operations, action expansions, or cover operational costs.

Here are some key features:

• Repayment terms vary
• Can be secured or unsecured
• Fixed or variable interest rates

Common types of small business loans are:

• SBA loans - Backed by the U.S. Small Business Administration, with favorable terms for small businesses
• Business line of credit - A revolving loan that allows businesses to draw as needed

Benefits of a loan calculator

Using a loan calculator has numerous benefits. Let’s briefly cover a few here.

1. Budgeting - helps you determine whether the monthly payments fit your budget before you commit to a loan.
2. Compare loan options - Adjusting variables like loan terms or interest rates lets you compare different financing offers and find the one that best suits your financial situation.
3. Understand interest costs - See how much interest you’ll pay over the life of the loan and assess how different interest rates affect the total cost.
4. Prevent over-borrowing - Understanding the full cost of the loan, including interest and fees, helps you avoid taking on more debt than you can afford to repay.