You will probably need to take out a loan during your lifetime. Whether you’re buying a car or a home, starting a business, consolidating debt, facing unexpected expenses, or paying for a college education, there will be situations when you’ll need more money for a purchase or a bill than you have in savings.

A loan is often a better choice for a ready source of cash than a credit card because interest rates on loans are generally considerably lower than on purchases that you make via credit cards. There are some exceptions to that rule—payday loans, for one—but using a loan calculator will help you determine whether the loan that you’re considering is fairly priced and right for you.

Do not focus entirely on the monthly payment. Figure out how much the loan will ultimately cost you in interest.

Use this calculator to test out any loan that you are considering. By tweaking the loan amount, loan term, and interest rate, you can get a sense of the possible overall cost. You will see that as the term of the loan increases, your monthly payments go down, but the overall cost of the loan (the total paid) rises. Be sure to consider any fees that you may be charged for mortgages and other specific types of loans.

You can look at the calculator in reverse. Find out how much you can afford to borrow based on a monthly payment that you can afford at the interest rates that you may be offered. Even if a bank or a car dealership is offering to lend you the money, it’s your job to determine whether that would be a wise financial move for you.

Two key factors will have the largest influence on the interest rate that you are offered: your credit rating and whether the loan is secured or unsecured.

Credit Rating Basics and Loans

The better your credit rating, the lower the interest rate, because you will be seen as a lower borrowing risk to the bank. Your credit is scored by credit bureaus such as Experian, Equifax, and TransUnion. An individual’s credit score is reported as a three-digit number, generally ranging from 300 to 850. The higher the number, the better your score.

1%

The percentage of the population that achieves a perfect credit score.

Even with a good credit rating, check to be sure that your interest rate is appropriate—loan discrimination and targeting by subprime lenders could mean that you’re not being offered the rate that you should be getting.

Secured vs. Unsecured Loans

Mortgages and car loans are offered at lower interest rates than personal loans because they are secured by the collateral of the house or car from which you are borrowing money to buy. A personal loan with no collateral against it will cost you more in interest because if you default, then the bank will have nothing tangible to foreclose on or repossess to cover your debt.