This is the biggest problem with online loan calculators

When it comes to things that have literally changed the world, the internet ranks number one with the steering wheel, the bulb, the vaccines, the airplane and the computer, to name a few.

Anyone who uses the Internet knows how valuable it can be. For those who grew up before the Internet was widely used, it can sometimes be difficult to remember how the world managed to function without it.

And anyone who has used the Internet is also familiar with some of the pitfalls associated with it, such as information overload, the anonymous spread of hate and other social ills, and even the increasingly recognized Internet addiction.

Another problem associated with the Internet is the proliferation (knowingly or unknowingly) of false or misleading information.

That brings us to the topic of the day: online loan calculators. In short, they can be problematic.

Good intentions, suspect results

Online calculators were not designed to be scams. When used as a single tool in your decision making process, they can actually be very useful. But on their own, they can be a problem. This is because these loan calculators have a default setting which may not be right for you.

The Journal of Behavioral and Experimental Finance published a study in June 2019 which concluded that depending on calculator settings, calculators could subconsciously manipulate potential borrowers into choosing a loan that is more expensive than necessary.

For example, the study showed that it was almost twice as likely for a borrower to choose a longer-term loan if the default settings were five years or more than if the default setting was only d. ‘a year.

The researchers had two theories as to why the study participants acted the way they did. One theory was that the default setting served as a starting point for the comparison. The other theory was that participants somehow viewed the default setting as a social norm (a most popular choice) or the prescriptive norm (a recommended choice).

Use them with other tools

Make no mistake, online calculators have some value, especially as a starting point. Using a calculator can at least give you an idea of ​​what you might be able to afford (calculators, of course, can’t factor in your unique financial situation).

But if you’re going to be using a calculator, be sure to try out plenty of settings other than the default ones. Better yet, use a calculator from a website that doesn’t populate information into its calculator.

Once a calculator gives you a rough idea of ​​what type of loan might be right for you, you have more work to do.

Talk to friends from affinity groups, other entrepreneurs, mentors, and anyone else who might have valuable funding information.

Do your own research on the Internet without a calculator.

Work out a few numbers on your own, factoring in your stomach for risk and realistic expectations for your business, including best and worst case scenarios.

The point is, when it’s time to talk to a lender, you need to be fully prepared for what is likely to come next. Gordon Gekko’s priority was skewed on “Wall Street”, but he was right when he said “information is power”.

The opinions expressed here by the columnists of Inc.com are theirs and not those of Inc.com.

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