I want to find out about:
How the Calculator Works
Finance Calculator and Interest Rates Explained Video by our "professor calculator" .
Introduced and presented by Professor Calculator.
When you borrow money to by an asset like a Car, Caravan or Boat you will be required to repay the amount borrowed over the term of the loan as well as any interest charged.
You can think of the interest being charged as the financiers fee for advancing the amount borrowed.
There may well be other fees and charges depending on the finance provider.
The components of how much your loan repayments will be is dependent on the following components:
The amount you want to borrow
The amount you need to borrow has a direct relationship to the amount of the repayment. The principle or amount borrowed will need to be repaid in full by the end of the loan term.
Length of the loan or The Term
The longer the loan term the more interest will be payable, but the amount borrowed will be spread over a longer period. Hence repayments will be lower, if rate remains the same.
A loan that runs over 60 months will attract more interest than one that runs over 36 months.
The term of the loan can have a bigger impact on repayments than any of the other components.
For example: A new Asset buyer borrows $20,000 over 60 months (5 years).
The repayments at 0% interest would be $333 per month over 60 month term. Compared to $556 per month over 36 month term.
The same Example based on a 10% interest rate would be $424.94 per month over 60 months. Compared to $645.34 per month over 36 month term.
Frequency of repayments
You can further reduce your repayments by paying more often that Monthly.
Weekly or Fortnightly re payments can reduce your overall interest bill.
For Example using our 20,000 borrow as an example at 10% over 5 years the difference in monthly equivalent repayments is as follows.
Another useful tactic on some finance products is to pay half you're monthly instalment on a fortnightly basis, this can help you pay off your loan sooner. Although you need to ensure the product you are offered allows for this and what any early termination fee's and charges might be.
The higher the interest rate the higher the amount that has to be repaid.
For example: A new Asset buyer borrows $20,000 over 60 months (5 years)
The repayment at 10% interest would be $424.94 per month.
The same Example based on a 8% interest rate would produce a repayment of $405.53 and at 12% interest rate would produce a repayment of $444.89.
Any Balloon Amount.
The balloon or residual is the balance you are financing on a an interest only basis until the end of the term, when the amount of the balloon is payable.
Benefits - reduced repayments over the term of the loan.
This may be beneficial in that it can increase the value of the asset you can purchase.
At the end of the loan term the balloon needs to be paid in full, this can be by cash, refinancing or part of the changeover if buying another new car for example.
The problem with a balloon payment is that the value of the asset purchased if used as a changeover asset may not cover the amount of the balloon payment. As the principle is not reducing you will be paying interest on the full amount of this component until the end of the loan term.
The amount of the balloon is generally limited by the term of the loan ie longer the term the lower the balloon.
A new car buyer borrows $20,000 at 10% over 60 months (5 years) and elects to have a $5,000 (25%) Balloon Payment in their loan.
Their monthly repayments will be lower $360.37, than if they had no Balloon Payment $424.94, however they will still owe the financier $5,000 at the end of 60 months loan term.
To compare products across multiple lenders you really need to look at the comparison rate which takes into account some fees and charges.
Comparison rates were introduced to stop lenders advertising really low interest rates but then including other fees and charges to make up for the low interest rate.
Currently comparison rates relate consumer loans only. You might notice when you look on the web, loans being offered at low interest rates on basically products that are for consumers and the disclaimer that this rate applies to commercial loans only. If it's a consumer purchase, then ensure you are looking at a consumer rates. Otherwise you will be wasting your time and you could never get a loan at the rate displayed. There are other factors discussed below that dictate what rate a lender will offer you.
The comparison rate is really important. People tend to just focus on the interest rate being offered and don't notice the comparison rate. Only compare products by looking at the comparison rate. If not clear, ask questions.
Using the Finance Calculator
So using a calculator like the one on FindThatFinance can be a really use full tool to help you assess your loan repayments.
Remember it is a rough guide only for the purpose of simulation.
Loan repayment / calculator simulation is not an offer and has no legal effect on any contracts entered into by you 'the client', this simulation and the resulting calculations DO NOT CONSTITUTE A LOAN APPLICATION or OFFER.
Ok, so you have followed me so far.
What determines the interest rate that would be offered to you:
Particular Lenders criteria:
- Type of Goods
- Age of Goods
- Customer Profile - Renting, Buying, Boarding
- your Age
- Previous Credit History
- Time at Address - Rates are normally determined by the Financier taking into account all of the above.
- Employment status and
- Your ability to service the loan you are seeking.
A Home Buyer, who has been a long time at current address and employment, when buying a later model vehicle is generally going to obtain a lower interest rate than say an 18 year, old first time buyer, who has been in employment for only a short time, who is renting and buying an older vehicle.
Our calculator is a guide only. There are many factors that need to be taken into account.
We will refer you to a broker who has access to a diverse panel of lenders (bank and non bank), with many products on offer, variuos interest rates and fees. These do differ between variuos lenders.
The Calculator allows for a calculation on the data entered by you and does not take any other fees into account.
To obtain a more accurate idea of the relevant repayment applicable to your individual situation, please call 1300 378 021 to discuss.