One of the most popular tools to have been born from lenders and loan providers venturing onto the internet is the loan calculator: a simple set of questions that, when answered, gives you information regarding potential monthly loan repayments and the overall amount payable on any loan product. Most lenders have loan calculators on their websites as a means of drawing people into their application process — because the results you get appear on a particular lender’s website, you automatically assume that it represents a loan you might get from that lender. Cunning, eh?
Unfortunately, that’s rarely the case. Yes, the calculator does its job (which is to say, it calculates one number based on other numbers you give it), but any result is purely an indication of what you COULD get, not what you actually will. When it comes to making a decision over the kind of loans that they can offer you, lenders have to take a great many factors into account. As well as the amount you want to borrow and the length of time you’re looking to borrow it over, there’s also your personal circumstances like employment and residence, credit history, credit score and various other elements. All of these combine in a complicated fashion to help lenders work out the overall interest rate they can offer on a loan — even though it can happen very quickly, it’s still far more difficult than just putting a few numbers into some boxes and pressing the ‘Calculate’ button.
As such, it’s often wise to dismiss website-based loan calculator as little more than marketing ploys to make you think a lender can offer you the best rate. A better approach — presuming you’re not keen on putting in a huge amount of effort researching the hundreds of lenders and loan providers in the UK, that is — would be to approach a loan broker that has access to the same equations and information that lenders use when working out loan rates. Since they take the same personal details from you that lenders do in trying to make a loan decision but also have a large number of lenders on their books, they can usually offer a large number of loan options for you to choose from. As with lenders though, finding the right broker is key; one that doesn’t take an up-front fee is preferable, as is one that doesn’t rank lenders based on the commission they pay to the broker.
A loan calculator…
Can provide a rough estimate of monthly repayments and the total amount payable on a loan Won’t take your personal circumstances or credit rating into account Can’t predict different methods of calculating interest used by each lender Shouldn’t be used to make final decisions on which loan product to take Isn’t as reliable for options as a trustworthy loan broker
Copyright: Individual Finance, 2010