From repayments to interest, financial calculators can be a quick and easy tool for finding the figures you need to make better decisions. Get the lowdown on which to use and how below.

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Financial Calculators: Understanding What You Can Borrow & Afford

Financial Calculators: Understanding What You Can Borrow & Afford

When you’re looking into applying for a financial service like a personal loan or a new credit card, it can be hard to know whether you’re making the right choice. After all, there are so many things that you need to think about. How much will you be able to borrow? Will a credit card or personal loan be a better option for you? Will you be able to afford the repayments? A great way to decide whether to apply for that financial product or not is by using a loan calculator. Financial calculators are fantastic tools that can save you so much time and energy. 

Not too sure what they are or how to use them? No worries, Oiyo has your back. 

What are calculators? 

A financial calculator such as a repayment or borrowing calculator is a handy little tool that can save you a lot of time and effort when it comes to figuring out how much money you can borrow or what your repayments might be on different amounts. By using these tools before you apply to financial providers you can get a good idea of how much you might be able to borrow and what you might be able to afford.

Here at Oiyo, we’re firm believers that doing a little research beforehand is the secret to financial success. Instead of just signing the first contract offered to you, know what you’re getting into. This will help you avoid throwing your money away and getting hit with unrealistic repayment terms. It’s fair to say that doing your research before-hand and utilising a calculator is the financially responsible thing to do. Having this general information handy before you make any applications will make the process a lot faster and realistic for you in terms of what you might be approved for. 

What kinds of calculators are there? 

There are several different kinds of financial calculators that you might use when you’re looking to borrow money. It just depends on what type of financial product you’re looking to apply for. Some of the key ones include:

  • Borrowing power calculators
  • Repayment calculators
  • Credit card repayment calculators

Borrowing power calculator 

A borrowing power calculator is an online tool you might use when you start your home buying journey. They can typically be found on home loan and bank websites and are a fantastic tool to use when trying to figure out how much money you might be able to borrow towards a home loan. This can be a huge help in your home buying journey. Having an indicator before you start searching for a home is a great way to know what will be within your budget when you do start searching. 

Repayment calculator 

A repayment calculator is a little different. This type of calculator is usually utilised when you’re looking to borrow a financial product like a personal loan or credit card. It can also be used to figure out what your home loan repayments might look like as well. 

A repayment calculator will basically tell you how much repayments might be on a specific amount that you’re looking to borrow. It will allow you to enter different amounts and give you a general estimate on potential repayments. This is fantastic as it is a great way to see if you could fit the repayments into your weekly budget for different borrowing amounts. 

Credit card repayment calculator

A credit card repayment calculator is a handy online tool that lets you know what your repayments may look like on different credit card balances at different percentage rates. If you’ve been eyeing off a few different credit cards recently this is a great tool to have handy. You can find out what your repayments will look like and how much you might end up paying with different rates on balances owing.

Just remember to keep in mind that the figures that these calculators give you are indicative only. They are not a guarantee of what a bank or lender may set as your repayment or borrowing amount. Financial providers will discuss these amounts with you directly if you do decide to apply. These types of calculators are just a great indicator for you to get an idea of the approximate amounts. 

Trying to decide if a personal loan or a credit card will be a better option? 

It all comes down to your situation, but using a calculator can be a big help! If you’re unsure what will be more suitable for you, knowing the potential costs can be a good starting point. 

Personal loan

A personal loan enables you to borrow a small amount of money for a private expense, like a holiday or medical bill. Personal loans will always have some form of interest attached, increasing the repayments. You can determine the potential cost of a personal loan by looking at the interest rate, term and borrowing amount. 

ASIC’s MoneySmart website also has two handy calculators you can utilise for personal loans. One will help you work out your potential repayments. The other can help you work out how much you could afford to borrow.

Ultimately, most personal loan providers will have some kind of repayment calculator available online. If not, then they’ll at least have the interest rates listed so you can estimate the repayments from there.

Credit card

Credit cards can be a quick and easy credit option. Yet, when it comes to repayments, credit cards are a little trickier. A credit card can have varying interest rates, depending on how much you owe on the card, interest and more. You’ll want to have a rough idea of your monthly incoming and outgoing finances to figure out how much you have left to put towards possible credit card repayments. 

Utilising MoneySmart’s credit card calculator, you can try out different credit amounts and interest rates to see what will fit in your budget. Remember, a credit card is likely to have an ongoing payment that fluctuates. So, it’s important to consider what the repayments will be on the minimum balance as well as the maximum balance. If you can afford the greater repayment amounts, then that can help you decide which option is right for you.

Using a calculator to pay off your debts faster 

Who doesn’t love that feeling of finally paying something off and having some extra money at hand? Many lenders and financial providers will allow you to make free extra repayments on your debts to get them paid off faster. It’s a great idea to take advantage of this option where you can as getting your loan or credit card paid off early will save a bunch of money on interest charges.

By using a credit card calculator you can calculate how much time and money you could save by making extra repayments on your credit card. A credit card calculator will also indicate to you just how much you need to pay each month to have your balance paid off early and it will also show you just how much you could save in interest. 

So, for example, if you decided you wanted to pay an extra $20 a week, it can show you how long it will take you to pay off your loan with the extra repayments and how much you would end up paying in interest. This is a fantastic tool to see just how much faster you can get those existing debts paid off. 

The difference in monthly fees and interest charges 

When it comes to finance and personal loans, not all fees are the same. The fees that you are charged will differ depending on what kind of financial product you apply for. A repayment calculator is a great tool to help you decide which fee is better suited to your personal financial situation.  

Set monthly fees 

Monthly fees are set monthly charges that are a percentage of your principal loan amount. This monthly fee will remain the same throughout the entirety of your loan term. No matter how much of the loan you have remaining to pay off. This type of fee is usually only applicable to smaller short term loans under $2,000.

  • As an example, a monthly fee on a $1,500 loan at 4% would be $60. This fee remains the same and will be charged on a monthly basis regardless of whether you owe $1,500 or $200.

Interest charges 

Interest charges work a little bit differently. These charges will be applicable to your larger loans above $2,001 and also your credit cards. They will usually start off at a higher amount than your monthly fees, but they’re calculated on the owing balance of the loan or credit card. With this in mind, the more you pay off your loan or credit card balance, the lower your interest charges are going to be every month. The more you owe, the higher your fees will be. 

  • As an example of interest charges, if your interest rate is 17.68%, this will be calculated on the balance owing once a month. As you pay more off your loan or credit card your interest charges will become lower. This is a great motivator to pay your balance down as fast as you are able. If you do, you’ll end up saving a lot of money on your monthly interest charges.

Why use calculators 

Wherever you are in your financial journey, there’s no denying that calculators are great tools to help you along the way. By utilising them, you can get a great idea of what your repayments might look like, how much you might be able to apply for and how different fees might affect your repayments. 

You can also get a good idea of what your borrowing power might be when applying for a home loan. They’re even great tools to use if you were thinking of making extra payments on your existing debts as they’ll show you just how much money you might be able to save.  

There’s no doubt about it, financial calculators are handy little things. But don’t just take our word for it. Why not go and have a look at some of the calculators out there? You’ll be surprised at just how much easier they’ll make sorting out your finances.