In the present situation, it can be difficult to acquire a loan. However with the advancement of technology, anyone can submit a loan application just with a few clicks. Your loan will get assessed and approved easily within a few days. Now most lenders provide the funds within 24 hours of applying to your business’s active bank account. Though the application procedure is effortless, you must decide on other aspects too. You must focus on what type of short-term business loan is suitable for you and meet your requirements, the interest rate associated with the loan, and how long you have to pay the monthly installments. You can easily calculate them with the assistance of loan calculators. It has become the most popular process of calculating.
Loan Calculators and Their Reliability
You might wonder how loan calculators operate. Are they trustworthy? Can you rely on them when it is a matter of money? Well, we will answer all of these questions here in this write-up.
Before getting a loan, think about your ability to make the payments if you can afford it or not. Loan calculators aid you in evaluating what you might have to pay. If you enter correct data into the calculator, you will surely get accurate information. The calculator will help you to know the amount of monthly or quarterly or yearly payment, whatever you choose. Then you can determine whether you will be able to bear the loan or not.
Loan Repayment Calculation
The type of finance you will obtain will determine the payable amount of the loan and the interest rate. Thus loan calculators do the calculation accordingly. Here are the basic calculations utilized while acquiring a financing facility.
1. Interest-Only
In this type of loan, you only have to pay the interest amount. There is no payment of principal for the term of the loan agreement. Suppose you have borrowed $100,000 from a small business loan lender at the interest rate of 6%. The loan period is of one year, and you have opted for the monthly interest only repayment option. To evaluate the amount, transform percentages to decimals and follow the below-mentioned formula.
a*(r/n)
a = 100,000 (the amount of loan)
r = 0.005 (6% interest rate annually or 0.06 divided by 12 as there will be 12 payments a year)
n = 360 (12 payments per year for 30 years)
Calculation: 100,000*(0.06/12) = 500
You have to pay $500 per month.
2. Amortized Loan
You will have to pay both the principal and interest amount for a certain period in this sort of loan. With the same amount, interest rate, and a long term 30-year loan the calculation will be like this:
a/[{(1+r)^n}-1]/{r(1+r)^n} = P
a = 100,000 (the loan amount)
r = 0.005 (6% annual interest rate divided by 12 as there are 12 monthly payments per year)
n = 360 (12 monthly payments for 30 years)
Calculation: 100,000/[{(1+0.005)^360}-1]/{0.005(1+0.005)^360} = 599.55
$599.55 will be the monthly payment amount.
3. Credit Card
With a credit card you can obtain an amount of funding up to the credit limit of the card. This facility is reusable. You can pay down and reuse the funds within the term of the loan.
Your card balance will determine the monthly repayment amount. For instance, a credit card company may ask you to pay a minimum of 25% of your total card balance per month. To avoid additional charges and penalties, prefer to pay a little more than the minimum due per month.
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Other Things to Consider
Several companies are now offering different types of loans around the world. Loan calculators will help you get an idea about what to select, related to the extra fees and interest rate. Remember, a lesser amount and low repayment does not always mean the deal is the best. The longer you are paying off the loan, the interest rate will be higher. Other than repayment fees, there are two more things to consider while choosing a loan option. They include
- Interest Rate: You can acquire finance with a lower interest rate if you have a good credit score or offer security for the loan. So if you want to apply for a loan, it will be better to create a good credit score first. Research thoroughly and compare different loans and interest rates of various organizations such as – conventional banks, online lenders, lending companies, and more. Go through the loan terms and enquire about the additional charges and penalties as they can make it difficult for you to afford the loan.
- Loan Term: Before opting for a loan, consider how long it will take you to repay the loan, the longer the loan term the higher the costs that will be associated with the funding.
End Thought
Business funding can be risky at some point. However, it is a wise decision to obtain unsecured business loans in NZ, considering every factor associated with the loan. If you are confident your business can afford the loan and have the turnover to service a loan, business loans are the best option for you.
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