Why using loan calculators can save you money

30-01-2014 | Dojo |

Taking a loan is always an important decision and it needs to be carefully considered. A small mistake can get your monthly payments to unbearable values or you’ll pay extra interest, even if you could have paid less. This is why most people, when having to choose a loan, are carefully considering their options.

The biggest challenge remains crunching the numbers and making sure your calculation is right.

Back in 2008, when I took on a car loan, I didn’t have the ‘luxury’ of loan comparison site such as LendMe, I just got to the dealership and asked about a car. Took home some paperwork and then discussed the idea with my family.

loan calculators

I was set on a certain car (which wasn’t too affordable, but I liked it and wanted it – big mistake, never think with the ‘heart’) and knew approximately how much it would cost me. I’m using approximately in the previous sentence, since at the end I paid 50% more on it (upfront payment, plus the premium – and very expensive – insurance I was forced to take on).

So, armed with almost NO information about my loan and how it will affect me, I then went back to sign the papers and have the calculations done. Looking back I wished I could have some loan calculators to use, it would have clearly helped me a lot.

The dealer presented me with their fixed rates, told me ‘you’ll pay this‘. I had to take it or leave it. I did take it and paid through my nose.

How would have a loan calculator help me?

1. I would have received more data from the start.

I could only imagine what the contract conditions were and my Math was always pretty bad. So, instead of knowing exactly what my monthly payment looks like, how much I’m losing in interest, if there’s any better time-frame to use etc., I went blindly and accepted anything I was being offered.

The only smart thing I did was to not drag my loan for too much, so I chose to have it paid off in 4 years. Which actually wasn’t easy at all, since it would eat up a lot of my monthly income. I was thinking about being able to earn more money from my web design business (was banking on future earnings), but it’s never a good plan.

Anyway .. even if it was very painful and risky, the trick worked for me. It could have gone worse and, having a loan calculator might have helped me think it through some more.

2. The loan calculators Math is better than mine

I always joke that, if I didn’t have an accountant, I’d be broke just because my calculations are always filled with mistakes. A loan calculator doesn’t make mistakes. It’s got some data set in and the algorithm, the Math was done by someone who’s clearly smarter than me. So there’s no chance for me to think I’ll have ‘this’ monthly payment, only to find out, when I have to make it, that my mistake costs me more each month (don’t think my ‘karma’ would allow me to make a mistake in my favor).

3. Instant data and results

Provided I’d be willing to take into account my flawed calculations, having to run various numbers and variables would cost me a lot of time. 12 months? 16 months? 24 months? Each and every possible solution would mean running the numbers yet again. It takes time and bores me to death.

In this case the calculator does this instantly. All I have to do is input a different number and everything is calculated precisely. I can then just write down the possible variants and then decide.

Instead of having someone spring some pretty nasty deals on me (as it happened, and I was ashamed to refuse it), such a calculator would allow me to get back to the meeting well prepared. I can personally see which options work best for me, have all the information ready and then clearly make a better decision.

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