When is it a good idea to take out a loan?

You might consider borrowing a loan to make a major purchase – a house, car or education, for instance. Loans can also be helpful for covering large costs like home improvement projects or major vacations. Before borrowing a loan, be sure to calculate what your monthly payments will be. It is only a good idea to borrow if you are confident in your ability to make payments as scheduled over the life of the loan.

What are the different types of loans?

Loans can be divided into two main categories: secured and unsecured. Auto loans, home equity loans and mortgages, are all examples of secured loans, meaning they require an asset, like your home or car, as collateral. Because secured loans involve less risk from the lender, they typically have lower interest rates than unsecured loans, but you run the risk of losing your asset if you default on the loan. Personal loans and student loans are typically unsecured loans, meaning that you do not have to put up any collateral. But because of this not only do they tend to have higher starting rates than unsecured loans but also have stricter credit requirements to qualify.

What determines the overall cost of my loan?

The overall cost of your loan will include the principal amount borrowed, plus interest accrued on that principal, in addition to any lender fees. The latter may include origination or closing costs, depending on the type of loan. However, how much you’ll pay in interest and fees is often determined by your credit score. The higher it is, the lower cost your loan will be.

Loan Repayment Calculator

Jun 10, 2025

If you’re considering taking out a loan and want to find out what payments will look like each month, as well as how interest will accrue, Bankrate’s loan repayment calculator can help. Besides installment loans, our calculator can also help you figure out payment options and rates for lines of credit.

If you are looking to calculate loan payment information for a personal loan, mortgage, auto loan or another type of installment loan, select “fixed term loan” in the “payment option” drop down. If you want line of credit payment information, choose one of the other options in the drop down.

Calculate your monthly payments before applying for any loan. Knowing this information is crucial to determine exactly how much you can afford to borrow without tilting your monthly budget. Also make sure that you know the terms of your repayment process, especially if you want to take out student loans, as these types of loans have different terms than personal or auto loans.

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What to know about loan repayments

Most loans are installment loans, meaning that you receive a lump sum of money upfront that you pay back through a course of monthly payments. If you have a fixed rate loan, you will pay the same amount over the life of the loan. If you have a variable rate loan, on the other hand, the amount you pay each month could change based on how market conditions are affecting interest rates.

Monthly loan payments for personal and auto loans are made up of three parts: the principal amount, the interest rate and any applicable fees. Some lenders offer an interest-only period wherein you only pay the interest on the loan each month for a specified period.

The repayment process for student loans is different from other loan products, especially if you take out a federal student loan. Federal student loans have a six month grace period after you graduate, and your loan payments are paused if you re-enroll in school. Federal student loans have fixed interest rates and you have the option to enroll in an income driven repayment plan.

Private student loans also typically provide a six month grace period, but some have grace periods up to nine months or longer. Unlike federal student loans, private student loans do not have a standardized repayment process. You should review the terms and conditions of each lender carefully before choosing a private student loan.

What to do after calculating your loan repayment

Once you have calculated your monthly loan payments for a potential lender, you should check and see how that amount will fit into your monthly budget. If the potential payments are too high, you might want to compare other lenders or even reconsider the type of loan you are applying for.

It’s also a good idea to check your credit score, as this will determine not only your interest rate but also which lenders you may qualify with. If you have less-than-stellar credit and are having trouble finding a reasonable interest rate, you may want to look into lenders that offer loans for bad credit borrowers. These lenders typically have more flexible requirements and lower interest rate caps.

Loan terms to know

There are a handful of terms you should be familiarized with before taking out any loan to ensure you get the best product for your situation.

Amortized loan: A loan with regular, scheduled payments applied to both the principal amount and the accrued interest. Most personal loans are amortized loans.
Annual percentage rate (APR): The yearly interest rate for the loan plus any fees
Debt consolidation: A type of refinancing that involves combining several high interest debts under one new loan with a lower interest rate.
Debt-to-income ratio (DTI): Your monthly debt payments divided by your total monthly income; helps lenders establish borrower creditworthiness
Refinancing: The process of replacing existing debt with a new loan with a lower interest rate. You can refinance personal loans, auto loans and private student loans.

What you’ll need to apply for a loan

Although each lender has its own eligibility requirements, most of them require the following to apply for a loan.

Your Social Security number.
Your contact details.
Proof of address (utility bill or mail that shows your name and address).
Proof of identity (a copy of your passport, license or another state or government-issued ID).
Proof of income (this can be in the form of paystubs, W2s, 1099s or tax returns).
Statement of debts.
Statement of assets (savings, CDs, IRAs, 401ks and the like).

FAQs

You might consider borrowing a loan to make a major purchase – a house, car or education, for instance. Loans can also be helpful for covering large costs like home improvement projects or major vacations.

Before borrowing a loan, be sure to calculate what your monthly payments will be. It is only a good idea to borrow if you are confident in your ability to make payments as scheduled over the life of the loan.
Loans can be divided into two main categories: secured and unsecured.

Auto loans, home equity loans and mortgages, are all examples of secured loans, meaning they require an asset, like your home or car, as collateral. Because secured loans involve less risk from the lender, they typically have lower interest rates than unsecured loans, but you run the risk of losing your asset if you default on the loan.

Personal loans and student loans are typically unsecured loans, meaning that you do not have to put up any collateral. But because of this not only do they tend to have higher starting rates than unsecured loans but also have stricter credit requirements to qualify.
The overall cost of your loan will include the principal amount borrowed, plus interest accrued on that principal, in addition to any lender fees. The latter may include origination or closing costs, depending on the type of loan. However, how much you’ll pay in interest and fees is often determined by your credit score. The higher it is, the lower cost your loan will be.