How Much Does Your Personal Loan Cost

How Much Does Your Personal Loan Cost?
A personal loan is​ a​ big commitment for your financial future,​ one that you'll be living with for years .​
If you​ choose the​ wrong loan package,​ then the​ effects will be felt for the​ full length of​ the​ loan term,​ so it's obvious that you​ need to​ take care when deciding which loan to​ apply for,​ and from which lender.
It's also obvious that getting the​ cheapest loan possible should be a​ priority,​ but how can you​ properly compare the​ costs of​ loans? the​ first factor that most people look at​ when determining how expensive a​ loan or​ other form of​ credit is​ is​ the​ APR,​ or​ Annual Percentage Rate .​
This is​ the​ interest rate that will be charged on​ a​ loan,​ and the​ higher the​ figure,​ the​ more expensive the​ loan.
Although the​ APR figure is​ intended to​ give an​ accurate picture of​ the​ overall costs involved,​ there are several different ways of​ calculating it,​ and so when you​ compare the​ APRs of​ two loans side by side,​ you​ might not actually be comparing like with like .​
Because of​ this,​ you​ should also take a​ look at​ the​ other factors involved in​ how cheap or​ expensive your loan will be.
One major thing to​ look out for is​ whether the​ lender or​ broker will charge an​ arrangement or​ setup fee .​
This is​ a​ one off charge which is​ made when your loan application is​ approved and completed,​ and the​ fee is​ usually added on​ to​ the​ loan balance and repaid over the​ term of​ the​ loan .​
This means that not only do you​ have to​ pay the​ fee itself,​ but also interest,​ which will make it​ even more expensive than it​ initially looks .​
Arrangement fees are common on​ secured loans and mortgages,​ far less so on​ unsecured personal loans.
The length of​ a​ loan term will also have a​ major bearing on​ the​ cost of​ any loan .​
While a​ lower interest rate might be attractive,​ a​ low APR over a​ long term may actually lead to​ more interest being paid overall than a​ higher interest rate over a​ shorter term .​
It's usually a​ trade off between a​ lower monthly repayment and a​ lower overall amount of​ interest paid - the​ choice is​ yours.
Many loans and mortgages feature something called an​ early repayment penalty or​ fee which is​ charged if​ you​ clear your loan before the​ originally agreed term .​
It is​ usually expressed as​ a​ percentage of​ the​ outstanding balance,​ and is​ most commonly found in​ loan products that feature an​ initially discounted rate,​ or​ a​ long term fixed rate,​ and is​ put there by the​ lender to​ discourage borrowers from taking advantage of​ an​ introductory deal and then immediately switching to​ a​ new loan,​ so costing the​ lender money in​ terms of​ lost interest charges .​
The period in​ which an​ early repayment fee may be charged is​ usually limited to​ the​ first few years of​ your loan,​ and will be made clear on​ the​ loan agreement before you​ sign.
Even if​ there is​ no early repayment charge,​ many loan companies will charge an​ 'exit fee' of​ a​ few hundred dollars if​ you​ repay your loan early,​ perhaps as​ part of​ a​ debt consolidation program .​
This fee is​ intended to​ reflect the​ administration costs involved in​ closing your account,​ but recently there are suspicions that it​ has come to​ be seen as​ another way for lenders to​ squeeze a​ little extra profit from the​ loan.
Finally,​ one thing to​ beware of​ when taking advantage of​ the​ payment holiday option available on​ some loans is​ that although you​ don't have to​ make a​ repayment that month,​ interest will still be charged on​ the​ balance - so in​ effect you're paying double interest for that one repayment .​
If you​ use this option a​ lot then,​ over the​ term of​ the​ loan,​ the​ effects could add up to​ produce a​ substantially higher APR than that quoted when you​ took out the​ loan.
How Much Does Your Personal Loan Cost How Much Does Your Personal Loan Cost Reviewed by Henda Yesti on August 08, 2018 Rating: 5

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