Without taking out loans, many of us would not be able to buy a home
, a car or afford a higher education. Mortgages, auto loans and other types of loans can help us to advance and reach important goals in our lives.
The cost of a loan depends on the type of loan, the lender, the market environment and your credit history and income. Before you shop for a loan, get your credit report and credit score for free
on Bankrate so you can elimate lenders you are not eligible to borrow from. Borrowers with the best credit profiles usually get the best interest rates.
All loans are either secured or unsecured. A secured loan requires the borrower to put up an asset as collateral to secure the loan for the lender. An auto loan is an example of a secured loan. If you don’t make your car payments, the lender will repossess the car. An unsecured loan requires no collateral. Most personal loans
While shopping for any loan, it’s a good idea to use a loan calculator. A calculator can help you narrow your search for a home or car by showing you how much you can afford to pay each month. It can help you compare loan costs and see how differences in interest rates can affect your payments, especially with mortgages. The right loan calculator will show you the total cost of a loan, expressed as the annual percentage rate, or APR. Loan calculators can answer a lot of questions and help you make good financial decisions.
Calculators for loan types
Here are some details about the most common types of loans and the loan calculators that can help you in the process.
Bankrate’s mortgage calculator
gives you a monthly payment estimate after you input the home price, your down payment, the interest rate and length of the loan term. Use the calculator to price different scenarios. You might discover you need to adjust your down payment to keep your monthly payments affordable. You can also see the loan amortization schedule, or how your debt is reduced over time with monthly principal and interest payments. If you want to pay off a mortgage before the loan term is over, you can use the calculator to figure out how much more you must pay each month to achieve your goal.
Other mortgage calculators
can answer a variety of questions: What is your DTI, or debt-to-income ratio? That’s a percentage that lenders look at to gauge your debt load. Should you take out a 15-year mortgage or a 30-year? Fixed interest rate or variable?
It’s critical to nail down the numbers before buying a home because a mortgage
is a loan that is secured by the home itself. If you fail to make the monthly payments, the lender can foreclose and take your home.
Home equity loan
Home equity loans, sometimes called second mortgages, are for homeowners who want to borrow some of their equity to pay for home improvements, a dream vacation, college tuition or some other expense. A home equity loan
is a one-time, lump-sum loan, repaid at a fixed rate, usually over five to 20 years. Bankrate’s home equity calculator
helps you determine how much you might be able to borrow based on your credit score and your LTV, or loan-to-value ratio, which is the difference between what your home is worth and how much you owe on it.
Home equity line of credit (HELOC)
is a home equity loan that works more like a credit card. You are given a line of credit that can be reused as you repay the loan. The interest rate is usually variable and tied to an index such as the prime rate
. Our home equity calculators
can answer a variety of questions, such as:
- Should you borrow from home equity?
- If so, how much could you borrow?
- Are you better off taking out a lump-sum equity loan or a HELOC?
- How long will it take to repay the loan?
An auto loan
is a secured loan used to buy a car. The auto loan calculator
lets you estimate monthly payments, see how much total interest you’ll pay and the loan amortization schedule. The calculator doesn’t account for costs such as taxes, documentation fees and auto registration. Plan on adding about 10 percent to your estimate.
A student loan
is an unsecured loan from either the federal government or a private lender. Borrowers must qualify for private student loans
. If you don't have an established credit history, you may not find the best loan. Bankrate’s college savings calculator
will show you how long it will take to pay off your loan and how much interest it will cost you. The college savings calculator
will help you set savings goals for the future.
A personal loan
is an unsecured, lump-sum loan that is repaid at a fixed rate over a specific period of time. It is a flexible loan because it can be used to consolidate debt, pay off higher-interest credit cards, make home improvements, pay for a wedding or a vacation, buy a boat, RV or make some other big purchase. The personal loan calculator
lets you estimate your monthly payments based on how much you want to borrow, the interest rate, how much time you have to pay it back, your credit score and income.
If you have some combination of good to excellent credit, a low debt-to-income ratio, steady income and assets, you can probably qualify for most types of loans. Use loan calculators to answer your questions and help you compare lenders so you get the best loan for your financial situation.
Secured vs. unsecured loans
Secured loans require an asset as collateral while unsecured loans do not. Common examples of secured loans include mortgages and auto loans, which enable the lender to foreclose on your property in the event of non-payment. In exchange, the rates and terms are usually more competitive than for unsecured loans.
Unsecured loans don’t require collateral, though failure to pay them may result in a poor credit score or the borrower being sent to a collections agency. Common types of unsecured loans include credit cards and student loans.
Loan basics to know
Interest rate - An interest rate is the cost you are charged for borrowing money. This rate is charged on the principal amount you borrow.
APR - The APR on your loan is the annual percentage rate, or cost per year to borrow, which includes interest and other fees. You can use Bankrate’s APR calculator to get a sense of how your APR may impact your monthly payments.
Loan term - Your loan term is the period over which you will make repayments. Your loan’s principal, fees, and any interest will be split into payments over the course of the loan’s repayment term.
Principal - The principal is the amount you borrow before any fees or accrued interest are factored in.