In some cases, it is necessary to use debt as a way to make a major purchase. Few of us can buy a new car with cash, and even fewer of us can plunk down hundreds of thousands of dollars to buy a home outright. There are times when it makes sense to borrow in order to buy.
However, just because you need to borrow to make something happen doesn’t mean that you should do so foolishly. It’s important to figure out how much you can afford in terms of monthly payments, and then keep things under control. That way, you retain the use of the purchase without getting in over your head.
Use a Loan Payment Calculator
Before you get a loan, you should know how much you can afford. This is where a loan payment calculator can come in. The right loan payment calculator can help you figure out what your monthly payments will be, and then help you decide how large a loan you can get.
In order to effectively use a loan payment calculator, you need to decide how much you can actually afford to pay each month. Look at your finances, and come up with the total amount you can pay each month. This is the number you should use as govern your search. For example, if you want to keep your monthly mortgage payment to 25 percent of your $4,000 income, you need to make sure that your total payment isn’t more than $1,000.
Next, you need to realize that your interest rate and other factors will impact your monthly payment. If you have a higher interest rate, that means that your loan total will be less. When using a loan payment calculator, be realistic about the rate you can get research common rates for your type of loan and your credit situation.
You also need to take into account other costs. With a car payment, it’s fairly straightforward. With a mortgage payment, though, you need consider that your monthly obligation will include property taxes and insurance, as well as interest. If you are calculating a mortgage payment, look for a calculator that will help you include approximate taxes and insurance costs so that you get a more accurate result.
Try Different Scenarios
Run a few different scenarios with the loan payment calculator so that you can see what your monthly payment would be under different circumstances. Pay attention to the results, and record them. Your payment calculator can give you an idea of how expensive your car can be, or how much house you can afford. You should also make sure that you compare the results to what you have already decided you can afford each month. If a result is too high, you need to settle for something that isn’t as expensive.
