See if you can afford a new loan before you apply and assess the total cost.
Our loan calculator can help you make an informed decision before you take on more debt. One of the keys to managing debt is making sure that you can afford to repay loans before you take them out. You need the right interest rate and term to get monthly payments that won’t stress your budget.
It’s also a good idea to understand the total cost of the loan, so you know how much borrowing will cost you in the long-run. This free loan calculator can help you find a loan that fits your budget and needs. Please note, this is mostly for educational purposes to help you understand your financial standings.
Choosing the right term on a loan
A term is the amount of time a borrower has to repay the money they borrowed (with interest charges).
- A shorter term increases the required monthly payment but decreases total costs. This helps you save money overall.
- A longer term decreases the required monthly payment but increases total costs. This makes a loan more affordable.
Lenders offer different terms on different types of loans.
|Type of Loan||Common Terms|
|Car loans||Terms on car loans run from 24 months (2 years) up to 96 months (8 years).|
|Personal loans||Personal loan terms range from six months up to 60 months (5 years).|
|Student loans||Canada Student Loans have a term of 114 months or 9.5 years; the term can be extended in some cases to up to 14.5 years.|
Tip: Always choose the shortest term you can afford to repay
Increasing the term of the loan simply to make the payments lower only makes sense up to a point. You indeed want to make sure you can afford the monthly payments without stressing your budget. However, extending the term beyond that just to reduce the required payment more isn’t a sound financial strategy.
Paying off a loan as quickly as possible will minimize the total cost, so you save money overall. Another trick is to increase your payment frequency if you are able.
Getting the best interest rate
If you learn one thing from using the loan calculator, let it be about interest. When it comes to the annual interest rate applied to a loan, lower is always better. Lenders assign interest rates based on a consumer’s credit score. A higher score means you enjoy lower interest rates. Lower rates reduce both the monthly cost and the total cost of a loan. So, getting a lower rate is a win-win.
Just like with the term, different types of loans have different average rates.
|Type of Loan||Average rates|
|Car loans||Rates can vary widely, from 0% on new cars up to 36% if you’re looking for a loan that doesn’t have any minimum credit score requirement.|
|Personal loans||Rates on personal loans also vary widely, from around 5% up to over 45%.|
|Student loans||By default, a Canada Student Loan has a floating interest rate, which is equal to the prime rate (currently 3.95%); if you choose to switch to a fixed rate, it’s the prime rate plus 2% (currently 5.95%).|
Be careful with floating interest rates
While floating interest rates often allow you to qualify for lower rates on a loan, the variability can be problematic. If the prime rate increases, then the rate on your loan will increase as well. That will mean higher total costs and could also mean higher monthly payments.
While a fixed rate may be higher than a floating rate on the same loan, it does offer peace of mind that your rate will never change. The rate is locked in for the life of the loan.
When rates are low, consider refinancing to a low fixed rate
Paying attention to what’s happening with interest rates can be beneficial because you can refinance loans to secure a lower fixed rate. You can even use a debt consolidation loan to consolidate high interest rate credit card debt. However, you should only do so if the rate on the personal loan will significantly reduce the APR applied to the balance. If your credit card interest rates are 20% APR and a personal loan only reduces that 18% APR, that may not be worth the potential fees that you will pay to get the loan.