Before applying for a personal loan, it’s important to have a repayment plan to avoiding messing up your finances and missing payments. If you miss or make late repayments, you could be hit by extra fees and charges. A repayment plan basically refers to the loan term and monthly payments. The plan varies from lender to lender. So it’s up to you to find a lender that offers the best loan repayment plan that fits your diverse needs and budget.
In this article, we’ll talk about personal loans and how to calculate them.
What is a Personal Loan?
Personal loans are funds that banks, credit unions and private lenders offer borrowers repayable over an agreed period of time with interest. The amount usually ranges from £1,000 up to £50,000 repaid over 1 to 7 years. Lenders charge interest rates based on a few factors, such as credit score, credit record and debt-to-income ratio.
In short, the rates depends on how risky you are—the higher the credit score, the better the rates. So you should consider improving your credit score and cleaning up your credit report before applying for an unsecured personal loan.
Secured personal loans can get you lower rates because you’re pledging an asset as security. So the lender doesn’t consider you as a risky borrower.
How to Calculate Personal Loan Payments
To avoid burdening yourself with monthly payments, you should borrow money that you need to cover your expense(s) or purchase. To ensure you can afford the loan, you need to calculate the monthly payments, total repayable amount, interest rates, additional fees or charges and APR.
An online loan calculator really comes in handy when calculating and making loan comparisons. For potential customers convenience, most lenders offer loan calculators on their websites.
What is the Best Loan Repayment Plan?
To establish the best repayment plan, you need to work out how much it will cost you to borrow. You need to factor in the loan amount, the interest rate and loan term. Generally, a shorter loan term equals less interest rate. So you should be careful with lenders who try to stretch out the repayment loan term.
If you can afford the higher monthly payments in exchange for saving money on interest costs, go for it. Another option is to find a lender that allows early repayments and overpayments at no extra charges. Shop around and always negotiate for the best loan payment plan.