All you need to know about a loan charge calculator

Borrower using a loan charge calculator for a quick assessment

Benefits of using a loan charge calculator

Helps you choose the best interest rates

With this calculator, you are able to work out the interest rates that suit you based on the loan quantum required. It allows you to compare and evaluate if you should get a higher interest rate over a short tenure or a lower interest rate over a longer tenure. For example, you might consider using a loan charge calculator to source for a suitable 12-month loan.

Shows you EMI with various loan tenure options

EMI refers to equated monthly instalments, which are fixed payments for paying off the loan in full over the loan tenure. EMI is commonly calculated as follows:

  1.     Flat rate method

This simple method adds the interest into the principal loan amount and divides it by the loan tenure period (in months).  For example, Allan borrows S$500,000 at an interest rate of 3.5% for 10 years. Therefore, his EMI would be S$5,625 or (S$500,000 + (S$500,000x10x0.035)) /(10×12).

  1.     Reducing balance method

Using this method, interest is calculated based on a reduced principal loan amount on a monthly basis. As the loan amount reduces with each passing month, so does the corresponding monthly interest. Repayments at made in equated monthly instalments based
on the following formula:
EMI = p *((r *(1+r)^n))/((1+r)^n-1))
where: p = principal amount borrowed
r = monthly interest rate
n= total number of monthly payments
Using the same example as above, Allan’s EMI would be S$4,944.29 or   S$500,000*((0.0029*(1+0.0029)^120)/ ((1+0.0029)^120-1))
Clearly, the reducing balance method is a better option since it’s a more cost-friendly option for borrowers. In the long run, you end up paying more interest if you use the flat rate method.

Loan eligibility

A loan charge calculator is able to assess your loan eligibility regardless of bad credit loan history. You would need to provide accurate details of your annual income and credit score ratings during your loan assessment.

Assists you in handling your finances

You can plan your finances more effectively with the aid of this calculator. It will set you in the right direction for exploring areas in which you can cut down on your monthly expenses. Don’t rely too much on this calculator as proper budgeting is still the best way to manage your finances.
Now, let’s look at the jargon associated with the loan charge calculator.

Why use a loan charge calculator?

Instant loans from money lenders in Singapore are a quick fix for most people in desperate times. But before committing to a loan, it would be wise to check the total cost in order to have a clear picture of your monthly repayments. A quick solution would be to use a loan charge calculator.

A loan charge calculator will work out the total cost for the type of loan you need. It reflects your monthly repayments inclusive of interest based on financial data submitted, loan quantum required, loan tenure, and interest rates. The calculator should reflect an amortization schedule based on the data provided. It is also a good financial tool for assessing your financial capability to get a loan in the first instance.

What are the common loan components?

Principal amount

In the borrowing world, this refers to the original loan amount. In some instances, it may refer to the outstanding amount on a loan instead. For example, Betty took a $10,000 renovation loan, which would be the principal amount. If she pays off $3,000, the principal amount would be reduced to $7,000.

Loan tenure

This is the duration of time you have to repay a loan. Technically, a shorter loan tenure means higher EMIs with lower interest rates. On the other hand, in a longer loan tenure, you end up with lower EMIs but higher interest rates.

Repayment schedules

Simply put, it’s a schedule detailing the loan details such as interest rates, due dates, monthly instalments, and maturity dates. There is the flexibility of repayment options based on weekly, fortnightly, or monthly. Obviously, frequent repayments mean incurring less interest as your principal amount is paid up faster. Check your monthly budget before committing to the repayment terms so that it does not impose a financial burden on you.

Interest rates

It is a charge levied on a loan amount that is given to a borrower. It is represented as an annual percentage. Generally, there are 2 types of interest rates: advertised rates or effective interest rates (EIR). The latter is normally charged by money lenders in Singapore or banks. Effective interest rates reflect the total cost of a loan since it takes into account the admin and other processing fees involved.

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