Thinking of taking out a loan? It's important to work out whether you can afford the repayments so you don’t leave yourself in a tricky financial situation.
Luckily, Ocean Finance has made this easier with the launch of its new loans calculator.
The new calculator helps you work out how much you can afford to borrow with either a personal loan or a homeowner loan and what your monthly repayments will be. It’s vital you have an idea of these figures before you apply for your loan, so you can be sure you'll be able to comfortably afford to repay what you’ve borrowed and not put your credit history or your home at risk.
How does the loan calculator work?
Ocean’s new loan calculator asks you how much you want to borrow, how long you think it will take you to pay it back and the APR you would like to pay. It will then give you an idea of what you can expect to pay in total and what your monthly payments are likely to be.
Of course, the exact payment you make will only be determined when you apply and are accepted for your loan. However, a calculator can give you a good estimate of what you might pay.
But why is it so important to use a loans calculator before you apply for a loan?
Protect your home and credit history
A secured or homeowner loan is so-called because it is only available to homeowners and the money you borrow is secured against your property. This means that if you stop making your repayments, the lender has the right to repossess your home to get back what you owe them. That’s why it’s so important to make your payments on time each month.
If you take out a personal loan, your home is not used as security. However, any late or missed repayments will show up on your credit history. This can make it more expensive to borrow in the future, and may even result in your application for credit being turned down.
Using a loans calculator is a good way of working out how much you can afford to pay towards your borrowing each month without struggling. You can use the estimate it gives you to check your finances won’t be too stretched to cover all your outgoings - and if they are, you can reconsider how much you want to borrow.
It can be tricky to work out what your repayments on a loan will be without a calculator. It’s not simply a case of dividing up how much you’ve borrowed into monthly chunks, as you also need to include an APR. A loans calculator will include this information when it works out what your repayments will be.
What can you use a personal loan for?
It’s up to you how you choose to spend the money you borrow with a personal loan. However, as you agree how much you will borrow with your lender upfront, you’ll probably have a project in mind. So you might be planning to spend the money on home improvements or a new car. Or you might need it to pay for emergency repairs like a broken boiler.
Another popular option is debt consolidation; you use the loan to pay off your existing credit cards, overdraft and loans and then make just one repayment a month. This can be a lot simpler than trying to juggle lots of different payments and interest rates.
What can you use a homeowner loan for?
A homeowner loan typically lets you borrow more than you could with a personal loan. Another benefit is that the APR may be lower - although because homeowner loans are designed to be paid back over a longer time than personal loans, you could end up paying more interest overall.
Because they offer you the option of borrowing a large chunk of cash, homeowner loans are often used for big home improvement projects like an extension or loft conversion. As with a personal loan, a homeowner loan can be used as a way of consolidating your debts.
If you’re thinking of taking out a homeowner or personal loan, why not give our new loans calculator a whirl?
Disclaimer: All information and links are correct at the time of publishing.