Mar 01, 2024
Loans — whether it's a personal loan, an auto loan, mortgage or student loan — are a helpful way to cover your costs when you don’t have cash on hand or need some long-term help to achieve your goals.
But figuring out which loan is best for you can be challenging. There are many factors to consider, and the cost of a loan can be significantly different depending on the conditions of that loan. You aren’t just paying back a monthly principal; there is interest to consider, as well as monthly fees and other costs that might come up.
When comparing loans, you can’t just look at the amount you’re borrowing. You have to consider all factors. This calculator helps you consider all associated costs and determine which loan is best for you. Use our loan comparison calculator to see how it all stacks up.
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Definitions
LOAN AMOUNT
The total dollar amount for this loan.
Different loan types to compare
There are a variety of types of loans that you may consider, depending on your situation.
- Personal loans: Personal loans are unsecured loans that can be used for almost any purpose, from debt consolidation to financing home improvement projects. These loans typically have fixed interest rates and repayment terms ranging from two to seven years.
- Auto loans: These are restricted to the purchase of a vehicle, whether it’s a new or a used model. Auto loans have fixed interest rates and are a type of secured loan.
- Mortgages: If you’re in the market for a house or a condo, a mortgage is your best financing option. Mortgages can have fixed or adjustable interest rates and repayment terms of up to 30 years.
- Student loans: Student loans can be federal or private. These loans are designed to help you cover education-related expenses, such as college tuition and fees, books, materials and room and board.
Loan terms to consider
Before applying for a loan, it’s important to understand a few basic concepts, so you can choose the right lending product.
- Loan amount: Sometimes referred to as “the principal”, this is the amount of money you’ll be requesting and receiving from the lender.
- Annual percentage rate (APR): this figure, expressed as a percentage, represents the true cost of your loan. It includes not only your interest rate but also any other fees charged by your lender.
- Repayment term: The repayment term is the number of months or years it will take to pay off your loan.
- Debt-to-income ratio (DTI): This figure measures how much of your monthly income is compromised by your debts. Lenders use the DTI to determine your eligibility to borrow money.
- Loan amortization: This is how a loan will be scheduled out into equal payments for the loan's term.
- Origination fee: Some lenders charge an upfront fee to process your application. This fee is known as the origination fee.
- Commitment fee: This is a fee charged by a lender for future or unused credit.
- Closing costs: These are the charges related to finalizing your loan.
How to choose the right loan for you
Once you conclude the loan comparison phase, it is worth considering which terms are best for you. Consider your financial situation and how the loan may affect you.
It's not just a matter of the principal, but how long you will maintain the loan and how much interest will accrue over time. It may be worth paying more over time if the payments are more manageable, even if your repayment period is ultimately longer.
You may follow some steps on choosing the best loan for you.
- First, learn your credit score and know what kind of rate to expect based on that score, your income and debt-to-income (DTI) ratio.
- Run the numbers to ensure you can comfortably afford the monthly payments on your new loan.
- Compare different lenders to assess who has the most favorable loan terms.
Consider the type of loan that you are taking on, as well. Bad credit loans will have much higher interest rates than other loans and can stick you in a difficult financial situation. These can be helped with debt consolidation loans, but these carry additional costs that you’ll have to consider, as well — and it may hurt your financial situation or credit if you miss payments.
Choose a loan that is best for your situation, even if it is not considered the “best” terms in a vacuum. What is important is getting access to the money you need at a cost that you can afford.
How to choose the right loan for you
After comparing loans, it is worth considering which terms are best for you. Consider your financial situation and how the loan may affect you. Remember that it is not just a matter of the principal but how long you will maintain the loan and how much interest will accrue over time. It may be worth paying more over time if the payments are more manageable, even if your repayment period is ultimately longer.
You may follow some steps on choosing the best loan for you. First, learn your credit score and know what kind of rate to expect based on that score, your income and debt-to-income (DTI) ratio. Then, run the numbers to ensure you can comfortably afford the monthly payments on your new loan. Once you know exactly how much you would like to borrow, compare different lenders to assess who has the most favorable loan terms.
Consider the type of loan that you are taking on, as well. Bad credit loans will have much higher interest rates than other loans and can stick you in a difficult financial situation. These can be helped with debt consolidation loans, but these carry additional costs that you’ll have to consider, as well — and it may hurt your financial situation or credit if you miss payments.
Choose a loan that is best for your situation, even if it is not considered the “best” terms in a vacuum. What is important is getting access to the money you need at a cost that you can afford.
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