1. What is the Personal Loan Calculator?

This calculator determines the maximum loan amount you can afford based on your monthly payment capacity, interest rate, and loan term. It helps in financial planning by showing what loan size matches your budget.

2. How Does the Calculator Work?

The calculator uses the loan amount formula:

Where:

• \( P \) — Loan principal amount (USD)
• \( PMT \) — Affordable monthly payment (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Loan term in months

Explanation: The formula calculates the present value of a series of future payments at a given interest rate.

3. Importance of Loan Amount Calculation

Details: Knowing your maximum affordable loan amount helps prevent overborrowing, ensures manageable payments, and maintains healthy debt-to-income ratios.

4. Using the Calculator

Tips: Enter your comfortable monthly payment, the annual interest rate offered, and desired loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How accurate is this calculation?
A: This provides a good estimate, but actual loan offers may include additional fees or different compounding methods.

Q2: What's a good debt-to-income ratio?
A: Most lenders prefer your total monthly debt payments (including the new loan) to be under 36% of your gross monthly income.

Q3: Should I borrow the maximum amount calculated?
A: Not necessarily. Consider building in a buffer for unexpected expenses and future financial goals.

Q4: How does loan term affect the amount?
A: Longer terms allow larger loan amounts but result in more interest paid over time. Shorter terms mean higher payments but less total interest.

Q5: Are there limitations to this calculation?
A: This doesn't account for loan fees, insurance, or variable interest rates. It assumes fixed-rate, amortizing loans.