How to use a loan comparison calculator

Before you use a loan comparison calculator, you need to select the best deal for your credit rating. Use a comparison website, such as moneysupermarket.com, to identify a low interest rate loan. Once you've identified the most competitive deal, you need to adjust the repayment term to achieve a balance between minimising debt interest and repaying your loan as quickly as possible.

Just enter the amount that you intend to borrow, the rate of interest and the repayment term into a loan calculator, such as the one at fool.co.uk/loans/loan-calculator.aspx. You'll then be told how much you'll have to repay the lender each month. Provided that you maintain the repayments for the duration of the agreement, your personal loan will be completely repaid.

You've determined the rate of interest by using a loans comparison site, so the rate is set in stone. The factors you can influence are how much you can borrow and over how long. If the repayments are a little high, try reducing your loan or extending the term of the agreement. Do you really need to consolidate debt, by a new car and pay for an expensive holiday? Just because you can borrow money, doesn't mean that it's a good decision for you to do so.

Extending the term from 3 to 5 years will reduce your repayments, but will increase the amount of interest that you'll repay over the life of the loan. Use your loan repayment calculator to compare payments over different terms until you find one that is optimal for a person with your level of disposable income.

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