This article explains what a car loans calculator is and how it can be used effectively. What we mean by the term “Loans calculator” is basically a computer-assisted tool used to find out different quantities such as interest rate, the time period and the total amount to be repaid by the borrower. These tools, which were once used mostly by office staff working in banks, credit unions and other finance institutions, are easily available on the World Wide Web and can be downloaded. Any interested consumer can use loans calculators and derive their unique advantages: ease of operation, accuracy and speed.
Typically, before advancing a loan, banks, credit unions and other lending agencies calculate the interest rate to be paid by the borrower within the agreed loan period. In the simplest form, they calculate the simple interest rate. This is exactly what a high school math kid too does in the classroom, though at a simpler level! Let’s imagine that we live in a computer-less world and have to calculate the interest rate using paper and pencil. How will a person work out a simple interest calculation in such a circumstance Let us see an example.
Manual loan calculation:
Suppose Mary wants to buy a car. She borrows $10,000 from a bank at 5% interest such that the loan is cleared in 2 years from the date the loan advance is released to her. The amount $10,000 is known as Principal, 5% is known as rate of interest and 2 years, the time period of the loan. How much simple interest has she to repay to the bank in 1 year
The calculation is very simple if we use a high school math formula, which is popularly known as Simple Interest Formula. Like any other formula, this can also be written in the form of an equation as follows:
I = P r t ÷ 100
P = Principal loan amount borrowed, r = the rate of interest charged by the lender and expressed always as percentage, I = the total interest to be repaid and t = the period in number of years.
In the above example, P = $10,000, r = 5% and t = 2 years.
Applying these data in the formula,
Total interest to be repaid I = P r t ÷ 100
= (10, 000 X 5 X 2) ÷ 100
As interest is in $, the answer is $1,000.
That is, Mary has to repay $1,000 within 1 year to the bank.
Transition to the electronic era:
Many years back, loan officers and assistants in lending institutions the world over, used
to spend a great deal of their time and energy in literally performing ‘paper and pencil’ calculations like in the above example. The results were sometimes flawed due to human error. Today such calculations, and in fact any complex calculation, can be carried out instantaneously, by using any good loans calculator simply by feeding the relevant data to the computer.
Computer aided loan calculation:
Most finance firms that deal with loans have online calculators on their web pages. All that the borrower has to do is go to the web site and enter the respective values in the boxes labeled “Principal”, “Rate” and “Length of time”. Length of time is usually expressed in years. The principal is the amount of money borrowed. The rate means the annual percentage of interest. As soon as the person enters the three values and clicks the “Calculate” button, the computer software makes all calculations and the monitor immediately displays the total amount of interest to be repaid on the loan. Out of the four quantities, if any three are fed into the computer, the fourth quantity can be found out.
Let’s take an example of how a person can use an online loans calculator. John wants to borrow $5000.00 to purchase a used car. He wants to find out how much interest has he to repay at an interest rate of 8% for 4 years.
He may either use a loans calculator that he downloaded in his computer or use an online calculator hosted by a financial institution.
He will enter “$5000” in the “Principal” column, “8%” in the “Rate” column and “4” in the “Years” column. When he clicks the “Calculate” button, the total amount of interest to be repaid by him is displayed as “$1802.44”.
This means that the interest fees for the entire loan amount is $1802.44.
Some calculators can display actual calculations, complete array of interest rates, annualized percentage rates, FICO credit scores and other values. The calculating software considers the various taxes involved and their effect on the monthly mortgage payment when calculating. Some calculators display the values pictorially too, such as graphs and pie diagrams. Such pictorial illustrations help in analyzing twists and turns in a loan transaction very clearly, so that remedial action can be taken.
Loan payment calculators, mortgage payment calculators, loan comparison calculators, debt consolidation calculators, taxes and investments calculators and PMI cum points-related calculators are some of the different types of loans calculators. Some of them are simple whereas some are complex. Some calculators help you find out any one quantity such as in the above example while some may help you determine the most appropriate combination of different quantities, for instance the principal amount, time period, rate of interest and total amount repayable, in order to obtain the best home equity loan. The complexity of a loans calculator depends on why it is used whereas the accuracy of results depends entirely on the data that is provided by the consumer.
Some loans calculators are available as free downloads whereas some come with a price tag. All you need to download them is a PC or Apple McIntosh. Today, one of the most popular computer generated loans calculators is “The Quick and Easy Loans calculator” developed by Microsoft. According to Microsoft Website, this customizable tool costs $29.95.
Loans calculators help save a great deal of time, stationary and stress associated with manual calculations. They are an indispensable boon to borrowers, lenders and any one who is interested or involved in money transactions.