The Benefits Of Using A Compound Interest Calculator

By Harris Walker
Updated December 9, 2015
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The Benefits Of Using A Compound Interest CalculatorFor many people, getting a loan is probably the only way they will be able to make certain purchases or investments. Very few people today have the cash on hand to purchase a car, get an education, or invest in a new home, so it becomes necessary for them to borrow the needed funds to help them come up with the amount that is necessary for the purchase.

Still, when it comes to loans it is not always easy to calculate the additional costs of the interest that usually comes with the money you borrow. That's why it's always beneficial to take advantage of a compound interest calculator. Whenever you are comparing loan values, you'll need to know the true value of the loan so that you can determine, which one is the best for your and also if you'll be able to afford the payments.

Since not all loans are the same, interest rates can vary greatly from one place to another, so it may be necessary for you to do a great deal of research in order to find the best loan to meet your needs. For that you'll need to do a loan comparison, and when it comes down to calculating the compounded interest of a loan, it can be very complicated. Considering the fact that compound interest values can affect the cost of a loan dramatically, using a compound interest calculator may be the only way to see those changes in a way that can help you to make the right decision.

It Can Be Used For Many Different Types of Loans

When you're dealing with compound interest, the interest calculated each year is added on top of the principal so that the amount owed doesn't just grow by a set amount each year but can grow exponentially. A compound interest calculator can have various applications. Aside from calculating mortgage payments, it can be used to calculate personal savings plans, long term growth in stock market investments, the effects of inflation, and figuring out ways to pay down your debt.

Difference From Simple Interest Calculators

Unlike simple interest loans where interest is applied to the principal only, with a compound interest loan, interest is applied to the accumulated interests as well. For example, your bank account usually pays compound interest on your deposits whereas simple interest loans remain fixed when the principal never changes over time. Car loans may be fixed interest loans whereas investments in stocks and bonds can be compounded over years.

Needless to say, calculating compound interest loans can be very complicated and time consuming to do manually. However, when you take advantage of a compound interest calculator you can save yourself a great deal of time and guesswork. You'll be able to see the progression of the loan over time or you may be able to make a better informed decision about whether making a particular investment will be right for you. You could opt to calculate all of that information on your own but since many of these calculators can be found online for free, it just makes good sense for anyone with a mind for investments or getting a loan to take advantage of them.





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