# Personal Loan Calculator

Don't borrow any money without using our Personal Loan Calculator first. It will calculate how much you are going to pay interest over the duration of the loan and what are the monthly payments.

## What is a Personal Loan Calculator?

A personal loan is a sum of capital provided by a lender to an individual borrower. These loans can be used for a wide variety of purposes and generally come with defined terms and conditions regarding the maximum size of the principal amount, the rate charged, loan duration, etc. One of the main considerations of a loan is the interest rate that the lender levies.

With the Hardbacon Personal Loan Calculator, borrowers can see exactly how much they will make in interest payments given the rate they are paying, the size of the principal they are borrowing, and the total term of the loan. Some of the key uses of this calculator include:

• Budgeting how much you need to set aside per month or year if you take out this loan
• Testing the effects of different rates and loan terms to determine how changes in each variable impact your total payments made
• Understanding how much you would pay monthly based on the various parameters you input

## How to use the Hardbacon Personal Loan Calculator

The Personal Loan Calculator is designed to be a quick, efficient tool that provides you with the information you need to know prior to undertaking a personal loan commitment. In a few easy steps, you will have all of the information you need to know about your repayment obligations, so you can make the best borrowing decision for yourself and your family.

To use the calculator, you need to enter the following:

Loan amount: The principal of the loan, i.e., the amount that you receive from the lender on Day 1 of obtaining the loan. While the size of the personal loan may vary from borrower to borrower, most fall within the range of \$500 to \$50,000.

Interest rate: The annual rate of interest that the lender charges for lending you the money. Think of the interest rate as the cost of borrowing. Most personal loans will charge you anywhere from the prime rate (approximately 2.5%) to 10%+ depending on the lender and the borrower’s credit history.

Compounding frequency: This is the frequency at which interest gets accrued on a loan. Most personal loans are compounded on a monthly basis. However, there are certain loans that may be compounded on a daily basis such as student loans or credit cards.

Loan duration: The total term of the loan you are borrowing. Note that this is typically measured in years. Most personal loans are provided with a loan duration of 1 to 3 years. However, they can stretch up to 5 to 7 years as well depending on the lender.

## Understanding the results of the Personal Loan Calculator

Once you have made all the required inputs into the Personal Loan Calculator, all you need to do is turn your attention to the results section of the screen. Here, you should see a few numbers and a pie graph. The significance of each is detailed below:

Loan amount: The loan amount in the results tab is the same as what you entered in the input tab. As explained above, this is the total principal amount that the lender provides to you on the day you receive the funds of the loan.

Total interest: This number represents the cumulative sum of interest that you will end up paying on the loan over the course of the loan duration. For example, if the number is \$2000, that means that you will end up paying \$2000 over and above the loan amount as the cost of borrowing the money.

Total payments: This number is the cumulative sum of money that you will repay the lender over the duration of the loan. A simple way to verify this is to add up the ‘Loan amount’ and the ‘Total interest’ numbers above. Effectively, this represents the full repayment of the principal, as well as the interest incurred over the life of the loan.

Monthly payment amount: While specific repayment terms can vary based on the lender’s policies, the ‘Monthly payment amount’ represents an average of what you will pay per month over the life of the loan. To verify this, you can multiply the ‘monthly payment amount’ by the number of months of the loan’s duration. The result should equal to the number under ‘Total payments’.

Pie graph: Lastly, the pie graph shows the percentage composition of your ‘Total payments’ from a principal and interest standpoint. In general, the greater the loan interest rate and duration, the more you end up paying in interest.

You will also see a bar graph and a table if you scroll to the bottom of the screen. These two sections show valuable insights on your loan as well:

Bar graph: The bar graph displays the amortization that occurs on your loan over time. Put simply, it illustrates three variables:

The teal-coloured bar shows the principal repayment that has to be repaid during that particular year.

The orange bar shows the interest amount that is charged on the principal and has to be paid for that year.

The red line should be descending over time, and shows how much principal and interest is left to be paid at the end of each particular year.

Table: The table effectively shows the results of the bar chart in a tabular form with some additional details. By going from left to right, you should see the total principal and interest due in the year, total payments that have to be made in the year, the remaining balance owing on the loan at the end of each year, and the total percentage of the loan that is repaid at the end of each year.

Note: You can click the ‘+’ symbol on the right of each row to open a list of the monthly breakdown of all of the aforementioned details in each year.

The Personal Loan Calculator can be a quick and efficient budgeting tool to help you determine the dollar amount of repayments you will have to make per month and over the life of the loan. Read the below to understand some of the inputs at a deeper level:

Loan amount: If you are obtaining a term loan from a lender, then the loan amount is your total principal amount. Typically, you can find this in the contract you sign with the lender. If your lender offers you the ability to view your accounts online, you should also be able to verify this through your lender’s digital portal.

Interest rate: Interest rates can be fixed or variable, so it is important that you know the exact nature of the rate. For example, if the lender quotes you a ‘Prime + 2%’, that is typically a variable rate as the prime rate changes every now and then based on macroeconomic circumstances. However, if it’s a set percentage (such as 5%), then the loan is likely offered at a fixed interest rate. Check your loan documents and/or contact your lender directly to be sure.

Compounding frequency: To understand how often the lender charges you interest, you can once again read through the loan document or contact your lender to verify. In a loan with compound interest, the interest payable per period is calculated using the principal balance and any outstanding interest accrued. Generally, the greater the number of compounding periods, the higher the interest charged. For example, an interest rate of 2.5% semi-annually is higher than 5% annually.

Loan duration: Finally, the loan duration is the number of years that the loan is available to you for. At the end of this loan duration, the loan’s principal and interest must be repaid in full. If your loan is quoted in months, simply divide by 12 to obtain the number of years. Once again, if you are unsure of this information, look at your loan contract or contact the lender to verify.

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• ### 1. How do you determine APR on a personal loan?

The Annual Percentage Rate (APR) is a calculation that includes all of the costs associated with a loan. While the interest rate quoted on your loan contract represents just the cost of borrowing money, the APR also includes other charges such as administrative fees, penalties, etc. Similar to the interest rate, it is quoted as a percentage. The personal loan APR is a valuable tool for comparing rates between different lenders. While some lenders may quote a lower interest rate, the incremental fees they charge may raise the total APR in comparison to another lender.

For borrowers based in Canada, it is important to note that Canadian loan agreements are legally obligated to display the APR and not just the quoted interest rate. If you cannot find the APR on your loan document, contact your lender immediately to clarify.

• ### 2. How do banks evaluate personal loan eligibility?

In Canada, personal loans are subject to strict credit checks if they are obtained from a bank such as RBC, TD, CIBC, BMO or Scotia. These lenders use a variety of different qualitative and quantitative metrics to assess your ability to repay your loan obligations on time. Some of these metrics include:

The total income you generate: Higher salaries naturally mean more disposable income which can be used to make repayments on a loan.

Employment tenure and stability: In general, an employee who has worked for a longer period in a full-time role is a more attractive candidate than an employee who has just recently started a job and/or works in a contract or part-time capacity.

Credit history: Your history of repayments plays a central role in your ability to access new credit. Typically, your credit history is summarized into a three-digit number known as your credit score. In general, you want to have a score of 660 or above to be considered to have a good credit score.

Other debts and expenses: If you have other existing debts (such as car loans, student loans, etc.), you may not receive as favourable of a rate as you are deemed to be a higher credit risk than someone who is debt-free. Similarly, expenses are always estimated. However, higher monthly expenses imply less disposable income to make loan repayments.

Collateral: While most personal loans are offered on an unsecured basis, certain secured personal loans will ask for collateral to be placed upfront when the loan is provided. In the event that the borrower defaults on payments, this collateral will be sold off by the lender to recoup their money.

• ### 3. How do I calculate debt-to-income ratio for a personal loan?

Your debt-to-income ratio is another key criteria for lenders when making a decision on whether to lend or not. This ratio essentially calculates the amount of debt that a person is responsible for repaying every month divided by their total before-tax income. A higher debt-to-income ratio implies a higher credit risk as a greater portion of each dollar of earnings is being put towards the repayment of existing debts. To calculate debt-to-income ratio, follow these steps:

1. Gather and tally up your monthly bills such as your mortgage payment, rent, student loans, auto loans, credit card bills (use your minimum payment), and other expenses where interest is incurred. Note that you can exclude expenses like utilities, groceries, and taxes.
2. Calculate your total monthly income (gross amount). To view this number, you can check your paystub.
3. Divide the number you got in Step 1 over the number you got in Step 2. As explained above, you ideally want to have a debt-to-income lower. 30% or less is generally considered to be a good ratio.

• ### 4. How much can I borrow on a personal loan?

Your borrowing limit (i.e., the maximum principal that the lender is willing to offer you) is determined by a range of factors, including, but not limited to:

•   Borrower’s creditworthiness based on credit history
•   Length of the loan
•   Loan purpose
•   Whether collateral has been provided

Each lender has different criteria and policies, so one lender may be willing to provide a higher principal amount to the same borrower than another lender.