Personal Loan Calculator
Monthly Pay: $212.47
Loan Amortization Graph
Broadly speaking, mortgage, auto, lines of credit, and credit cards are all considered personal loans. However, the calculator above is designed for unsecured consumer loans granted for personal use towards major purchases such as vacations, weddings, or medical bills. Some people use them to invest in their small businesses. About half of all personal loans are mainly used by borrowers to consolidate debt.
Quick Tip 1: Loans advertised through physical mail or by phone can be predatory in that they sometimes target people who may misguidedly believe that these are the best rates offered on the market, not knowing that it is often possible to find numerous better options.
Traditionally, personal loans were provided by banks, credit unions, pawn shops, and cash advance stores. Recently, a slew of online P2P, or peer-to-peer lenders began popping up, shaping the landscape of the loan industry. They generally offer loans with more favorable terms because the low overhead website (as opposed to a brick and mortar store) itself isn't the actual lender but acts instead as the middleman who takes a small cut. These P2P lenders create vast opportunities in helping to link up borrowers and lenders who could possibly mutually benefit from doing business with each other.
Because they are entirely dependent on the creditworthiness of individuals, good or excellent credit scores are vital to receiving personal loans at good rates. Bad credit scores will find few options in the market willing to lend to them, and the ones that do usually come with unfavorable rates. There are understanding lenders who are willing to look past simple scores, however. They use other factors such as debt-to-income ratios, stable employment history, or the probability that student borrowers pay back in the future after graduating and find themselves in stable employment.
Quick Tip 2: Like credit cards or any other loan signed into agreement with a lender, defaulting on personal loans can damage credit scores and reports. Do not make that mistake!
Our Personal Loan Calculator can give concise visuals to help determine what monthly payments and total costs will look like over the life of the loan. Since most personal loans come with fees and/or insurance, the end cost for them can actually be higher than simple napkin calculations of loans using bare interest rates given by lenders. The calculator takes all of these variables into account when determining the real annual percentage rate, or APR for the loan. Using this real APR for loan comparisons is most likely to be more precise!
How They Work
Personal loans are loans with fixed amounts, interest rates, and monthly payback amounts over defined periods of time. Typical personal loans are $5,000 to $35,000 with terms of 3 or 5 years. They are not backed by collateral (like a car or home, for example) as are found in secured loans. Due to their unsecured nature, personal loans are usually packaged at high interest rates to reflect the higher risk the lender takes on, which can be as high as 25%.
Quick Tip 3: There are several alternatives borrowers can consider before taking out unsecured personal loans. It may be wise to first ask to borrow from loving friends or family who are willing to lend, preferably at zero or low interest rates. If this isn't possible, apply and see if any zero or low introductory rate credit cards accept an application. These types of credit cards tend to be great at carrying debt month-to-month without incurring interest for a borrower who intends to pay them off at a future date. Just be wary of rollover fees and mark the date on the calendar concerning when the credit card issuer evokes its interest-free period. If this doesn't work, another option is to secure loans to existing collateral such as a house, a car, or expensive jewelry. Most lenders see secured loans as less risky investments and tend to offer more favorable rates with higher amounts than unsecured loans. If pursuing this option however, please note that lenders can lawfully take ownership of any collateral signed.
Quick Tip 4: For any borrower with bad credit, it is possible to ask for someone to help cosign. A cosigner can be anyone from a spouse, parent, guardian, relative, or close friend. However, they must have good credit standing, stable employment, and basically be anyone else who would have gotten the personal loan if it was them applying instead. The cosigner does take on risk when they represent the personal loan borrower though; should the borrower default, the cosigner is next in line to make the payments.
Personal Loan fees
Aside from the typical principal and interest payments made on any type of loan, there are several fees that are unique to personal loans.
A personal loan usually comes with an origination fee, ranging from 1 to 5% of the loan amount. Some lenders ask for the origination fee upfront while most deduct the fee after approval. For instance, $10,000 borrowed with a 3% origination fee will only net $9,700 for the borrower, yet the repayment is still based on $10,000.
Quick Tip 5: Some lenders may ask borrowers to purchase personal loan insurance policies that cover events like deaths or job losses. Such insurance is not required by law.
How to Use Personal Loans
Personal loans can be helpful in several scenarios.
Once approved, personal loans can be funded quickly, usually within 24 hours, making them quite handy when cash is required almost immediately.
The interest rate on personal loans are normally higher than home equity lines of credit but lower than credit cards, making them good options for debt consolidation. It is very common for people who have overspent to take out loans to consolidate credit card debt sitting at higher interest rates. However, do not use debt consolidation as a way to free up credit cards for further overspending, which only furthers the root of the problem.
Quick Tip 6: Personal loans can have prepayment penalties, though it is rare. Remember to read the fine print!
Another viable situation to take advantage of a personal loan is when a highly probable return on an investment is imminent when all other loans with better rates have already been exhausted, such as loans from family or friends and low interest credit cards. For instance, a broke but high potential college student who needs the extra funds to finance a temporary move to a new location where they can potentially score a prestigious job and immediately become a high earner to pay off the loan. Or a small business owner who needs the extra funds to finance an ad for the business in the paper that has a high chance of bringing in lots of revenue.