Bad credit loans can be pretty flexible with the amount, so borrowers might be tricked into borrowing a higher amount that they really need. Before you even apply for your loan, make sure to determine how much money you need. Taking more than you need might sound like a good option, but you will pay it off for a longer time.
How much to borrow
Before you even proceed to fill out your loan application, you need to determine the amount you wish to borrow. The minimum for taking a bad credit loan can vary from lender to lender, but they can start at $500. However, have in mind that some companies have higher minimum amounts. If you need a small amount of cash, it is better to borrow from a trusted friend or family member.
How long will you pay the loan
Lenders offer flexible terms, starting from six months, going up to seven years. However, have in mind that this will influence the total amount of interest that you pay. Also, you will need to start making payments 30 days after you receive the money on your account.
Before entering the terms in your application, make sure that you can afford the monthly payments. Some individuals will opt for maximum monthly payments, so that they can cover their financial obligation faster and pay less money in interest.
Can you afford the monthly payment
To calculate the monthly payment that you can afford, there is a foolproof formula based on your income. Make sure not to spend more than 43% of your income on covering debt. Take the existing debt in consideration and calculate the monthly payment that you can make based on your income.
How to use a loan calculator
To assess if you can afford to pay a personal loan, use a loan calculator to get an estimate of the payments. To get started you will need an online loan calculator. First, you will be required to enter your current credit score. Even if your credit score is less than ideal, don’t hesitate to check the loan calculator to know what you can expect.
Next, you should enter the amount that you wish to borrow. Have in mind that bad credit loans come with a minimum of $500. Next, you should enter the desired terms. While paying off your loan for a longer time might sound like the easier option, this will result in paying more in interest.
Interpreting the results
When You press the submit button, the calculator will provide you with the required estimates based on the input you enter. The monthly payment indicates the amount that you need to pay on a monthly basis, which includes the interest rate. The calculator will count in the entered amount and terms to calculate the payments.
The calculator will show the principle that you owe. This is the total amount that you have borrowed which doesn’t include the interest. In addition, the calculator will show the total interest that you will need to pay for the borrowed amount. If you try to extend the terms, you will see that the total interest will rise.