A loan calculator is an essential tool for any borrower, and many lenders offer one on their website. When you want to apply for a loan from a lending institution, it is imperative that you should be aware of the amount of interest you will be required to pay in order to make a more informed decision on the amount of loan for which you wish to apply.

A loan calculator is an automatic tool that you can use to know the amount of interest you will be charged for a certain amount of money and the period of time you will be paying. Using this calculator, you can manipulate it to know the total interest you will pay, the monthly payments, the interest as a percentage of principal, interest paid in regard to whether it is simple or compounding interest, and other functions.

Just like many online car loan calculators, the loan calculator is automatic and will give you your answers instantly depending on what you want. It has a simple user interface where you simply fill in whatever variable you are using and the calculator will give an answer to what you want, whether it is the interest rate, principal or the amount payable over a certain period of time. The calculator works out an estimate of the amount of your monthly loans payments and the total annual income that is required in order to be able to repay the loan in monthly installments without a lot of financial strains.

Loan calculators can be used to compute government and private student loans, mortgage payments and car loan payments. In computing your loan variables (interest rate, principal and amount of time over which the loan has to be paid); the loan calculator assumes that the interest rate will remain constant during the repayment period. The calculator may have a fixed interest rate, usually between 5% to 8.5%.

The next assumption made by the calculator is that the loan will be repaid in monthly installments that are equal through standard loan amortization (that is, standard and extended loan repayment). Due to its assumption of fixed interest rate standard loan amortization, the calculator may not display accurate results if you are calculating alternate repayments plans such as income contingent repayment and graduated repayments.

You can find loan calculators readily available for free on the internet. There are basic and advanced types from which you can choose, though not all sites offer each. The basic calculators allow you to enter the number of payments you want to make, or the number of months over which you want the loan to extend, and the calculator works out the monthly amount you will be required to pay. With these, you are able to try various combination of affordable payments over the payment period. Advanced loan calculators enable you to figure out your debt-income ratios in additional to offering you results for different payment scenarios.

One of the advantages of using a loan calculator is that you can figure out the amount that you can borrow, you can find out how much of a deposit, or down payment, you have to make to maintain affordable payments, you can calculate your savings on tax and you can make informed decisions on whether to go for fixed or adjustable mortgage rates.

You can use the loan calculator to decide if you should consolidate your debt with a second mortgage or a home equity loan. You can also know the amount of time you will take to break even on the closing costs. Other calculations you can do include determining the impacts of early payments on your loan and capital gains (if you wish to calculate investment and tax plans).