Online calculators - buyer beware!
You need to know something? Just Google it! Access to information on any topic, by anyone, has never been easier, and while this can be great for consumers to gather intel for their purchasing decisions, there is always a time when it is best to speak to a specialist!
Online loan calculators have been around for many years, and are becoming more and more intuitive and dynamic to cater for diverse finance and family arrangements, and they are a valuable part of the decision process. But, the old adage, ‘rubbish in – rubbish out’ has never been more true!
How do online calculators work?
Most banks and lending institutions each have their own proprietary Loan Calculators on their website, noting that they are designed to work in alignment with each business’ product offering and are not transferrable. They are set up to use some basic information from customers, such as buyer status, deposit savings, borrowing amount and whether the purchase is for an investment or to live in.
The key factor to remember is that calculators are generic, that are not personalised, and most of the time our lives cannot be packaged up into a series of 5 answers. These tools provide a guide to help you make some decisions on priorities and to enable some basic planning, they are not valid as a pre-approval from a bank.
Why they can useful
Just like all interactive tools, the benefit of online calculators is that you can ‘test’ a number of different scenarios to fine-tune your planning. For example, test what repayments will be if there is an interest rate rise, will you still be able to afford this in your budget?
Other reasons a loan calculator can be a useful tool in your planning stage are;
- Test rates from various lenders – compare loan products to check what suits with your current situation,
- Understand what you can afford – obtain a snapshot of weekly/fortnightly/monthly repayments and whether this is feasible,
- Check the impact of additional payments – some loans include options to pay additional payments to reduce interest,
- Obtain the full picture – understand the full repayment figure over the life of the loan.
What they don’t consider
Importantly, these online tools do not replace the benefits of seeking advice from a loan specialist, they are designed for quick information input and output. They don’t cater for individual circumstances such as employment status (part time, own company, contract worker etc.), existing debt (other loans, credit cards etc.), or your future plans (maternity leave, holidays, etc.), they are a guide only to enable very top level decisions.
Next step after using a loan calculator?
Regardless of the outcome of the online calculator exercise (even if you didn’t get the answers you were hoping for), a loans specialist will be able to gather information specific to you and review options tailored to your situation. In some situations, the timing might not be right, such as the requirement to save a greater deposit, which can result in a savings plan working towards your goals. Rather than shopping all of the available lenders and loans, a broker, who has access to highly competitive rates across many lenders, can do the leg work for you.