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How to use a loan interest calculator

Regardless of whether you are taking out secured or unsecured low interest loans, it is essential that you establish how much of your disposable income can go towards its repayment. You can establish a repayment term based upon whether paying off the debt quickly or achieving greater affordability is the most important factor to you.

Information that you need to enter into a loan interest calculator

Size of the loan
You will need to decide how much money you want or can afford to borrow based on your current credit profile. You are then able to change the amounts or increase the term to ensure that the repayment schedule is affordable to you. Loan duration
Personal loans for debt consolidation and home improvements are usually available for up to five years. However, some lenders will allow you to repay the debt over a period of seven years. The higher default rate means that the cost of borrowing is higher. Rate of interest
Lenders use personal pricing to determine the rate of APR that you will pay on your loan mortgage deal. Interest rates will also be affected by the term of the loan and how much money you choose to borrow.

Other factors to consider when using a loan calculator

Small loans are more expensive
Enter a few different figures into a loan rates calculator to see how it affects the rate of interest. You will normally find that loans for between £7,500 and £15,000 have a much lower APR. For example, a loan from HSBC for £8,000 over 60 months will cost you £159.37 at 7.5% APR. However, a loan for £5,000 over 60 months will cost you £120.84 at 16.9% APR. You pay a higher rate of interest because the cost of administering a small loan are a lot higher. Personal loans for over £15,000 have a high APR
The more the customer borrows, the greater the likelihood of default. An HSBC loan for £15,000 has an APR of 7.5%. However, the interest rate rises to 9.9% if you borrow between £15,001 and £25,000. Just borrowing an extra £1 (Borrowing £15,001 rather than £15,000) could cost you hundreds of pounds in additional debt interest. Early redemption penalties
Most lenders allow you to pay off your new mortgage or loan early, but they will charge you an early redemption penalty. Although it is essential for you to check the T&C's of the agreement, the penalty is normally equivalent to one month's interest.

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