A guide to loan calculators and what loan terms really mean
Before making big purchases with the help of a loan, such as a house or car, it’s important to crunch the numbers to determine how much you’ll be paying over the life of the loan and find the option that makes the most sense for you.
Utilize our mortgage and auto calculators to determine what kind of loan you can actually afford.
To make sure that the calculators work accurately for you and help you understand what makes up your payment, you must first make sure you insert your information both honestly and as precisely as possible. Here are some general terms to know, so that you connect your numbers with the right terms.
Purchase price: The overall price that you agree to pay the vendor for the item that you wish to purchase. It is often the averaged value of multiple items that are similar to what you are purchasing. Keep in mind, you'll still want to do your research to make sure that you are getting a fair offer.
Principal: The total amount of money borrowed that you pay interest on. For instance, if you buy a car and the purchase price is $15,000 but you only need a loan for $10,000 at an interest rate of 4.9%. The principal of the loan would be $10,000 - the amount that you're borrowing. This will not include the fees or interest of the loan.
Monthly payment: This payment will go towards both the interest and the principal cost of your loan in effort to pay it off in a certain time frame. The minimum amount that you need to pay on a monthly basis will be defined; however, we advise that you pay more than the minimum to improve your credit.
Down payment: This is the initial payment that you will make on a large purchase before your line of credit or loan kicks in as a way to pay for it. The down payment is the largest sum of cash that you can put down on an item before you must rely on a loan as a way to pay for it.
Interest rate: This is the percentage of the loan principal that you'll be charged for using the loan as a payment.
Loan term: This is the duration of time that you have to pay off your loan. You can, of course, pay the loan off before the defined time period, in most cases with no penalty.
Sales tax: Sales tax is the amount that you must pay for the purchase of an item. It is generally a percentage of the purchase price. The percentage of sales tax will vary.
Cash rebate/cash back: When buying an item you may qualify for a cash rebate, or cash back, for the purchase. In most cases, it will reduce the purchase price and will not be physical cash.
Knowing these terms will help you with any current and future loans. Don't get caught up in the financial jargon when discussing the terms of your loan. Have the knowledge and the numbers behind your back.
The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its affiliates and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.