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For a fixed interest loan, the Pool Loan Payment Calculator can calculate the monthly payment amount and amortization schedule. You can also use our auto lease calculator to estimate your auto lease.

A loan is a contract between a borrower and a lender whereby the borrower gains an amount of money (principal) under obligation to be paid back later. One can personalize loans depending on certain criteria. There can be an overwhelming amount of choices.

Fixed Term

Many other loans, including mortgages and vehicle loans, apply the time restriction method of loan payback. Choosing to have regular monthly payments between 30 years or 15 years or another terms for mortgages in particular can be a very significant choice since the length of a debt obligation influences a person’s long-term financial goals. A few instances consist:

Given the uncertainty of long-term employment stability or preference for a lower interest rate, a shorter mortgage term would be chosen even if savings are somewhat large.
Selecting a longer mortgage term will enable one to properly schedule it with the release of Social Security retirement payments, therefore enabling mortgage pay-off.

The Payment Calculator can help you figure out the minute aspects of such factors. It can also help one choose between financing choices for an automobile, spanning 12 months to 96 months. The shortest period usually produces the lowest total paid for the automobile (interest + principle), even if many car purchasers would be tempted to choose the longer option with the lowest monthly payment. To find which term best fits their budget and situation, car purchasers should play about with the factors.

Interest Rate (APR)

Make sure you distinguish between interest rate and annual percentage rate (APR) when applying a value for this input. Particularly in cases involving very sizable loans, including mortgages, the difference can be in thousands of dollars. The interest rate by definition is just the cost of borrowing the principal loan amount. Conversely, APR is a more all-encompassing assessment of a loan’s cost including other expenses including administrative fees, discount points, closing charges, and broker fees. Stated another, these extra expenses are added to the loan’s cost and prorated throughout its lifetime rather than upfront payments. Should a loan have no costs, the APR is equal to the interest rate.

Variable vs Fixed

Regarding loans, one usually has two choices for interest: fixed or variable, commonly known as adjustable or floating. Conventionsally amortized loans like mortgages, vehicle loans, or education loans most of which have set interest rates. Variable loans include some personal and student loans as well as home equity lines of credit (HELOC) and adjustable-rate mortgages.

What is Variable Rates

In variable rate loans, the interest rate could vary depending on indices including inflation or the central bank rate (all of which are typically in flux with the economy). Lenders most often consult the key index rate established by the U.S. Federal Reserve or the London Interbank Offered Rate (Libor) for variable rates.

Variations in rates of variable loans will affect regular payment amounts; the rate change in one month affects the monthly payment due for that month as well as the total estimated interest owing over the loan life. Regardless of the change in the index interest rate, certain lenders may set caps on variable loan rates, therefore imposing maximum limitations on the interest rate paid. Most usually revealed in a loan contract, lenders only change interest rates on a frequency decided upon by the borrower. Therefore, a change in an indexed interest rate does not always translate into a straight change in the interest rate of a variable loan. Generally speaking, when indexed interest rates are heading down, variable rates benefit the borrower more favorably.

Credit card rates may be variable or set. Variable interest rate credit card issuers are exempt from providing advanced notice of an interest rate rise. Excellent credit borrowers could ask for more competitive rates on their credit cards or variable loans.