Often when we are thinking about whether to take out a loan, we will worry about the cost. We all know that loans will cost money and there is no loan type that will not. However, we can get worried about the fact that some loans are more expensive than others and wonder which we should get because of the cost. It can be hard to compare them as well as they are priced differently. It is therefore wise to have a good understanding of loans and their costs so that you can choose one according to your needs.
How do lenders charge?
Many people will look at the percentage rate of a loan and compare that to see how much the loan will cost. This can be a mistake. Firstly, there are different percentage rates some use APR and some AER and comparing these can make things confusing. An APR is an annual percentage rate which is the yearly percentage rate that you will be charged on the loan. The AER is the Annual Equivalent Rate which includes any other costs of the loan as well as the interest. This means that an AER will generally be more expensive as APR but if you pick the cheaper percentage rate you could still end up paying more overall due to the other charges for the loan. Charges can include set up charges and administration charges. They tend to be applied once at the beginning of the loan but lenders can charge what they like so they might have yearly fees or other ad hoc fees.
How to find out the specific cost of a loan?
It is therefore much better to try to find out how much you will be charged for the loan in monetary terms. This will allow you to do a like for like comparison between different loans. Some lenders will have a repayment calculator on their website. This will allow you to enter the details of the loan that you are interested in and it will let you know how much you have to repay and how often. Then you will be able to add it up and work out the total cost. Not all lenders will have this service though so you may end up having to look through the terms and conditions. This can be complex and often is not something that we will even understand. However, you should be able to find out if you contact the lender. It is also worth looking at any additional charges they might make in certain circumstances. This includes things like late payment charges or early repayment charges. It is a good idea to note these even if you think they will not apply to you as they can vary quite a bit. If you are not sure which of two lenders to choose between because they seem similar, then it could be this sort of thing that could help you to make the right decision.
Are instalment loans too pricey?
If it is specifically instalment loans that you are interested in then you may worry that they are too expensive. Firstly, it is worth bearing in mind that because they will lend to those with a poor credit record then they take on a lot of risk and therefore charge extra for it. They will also be able to arrange a loan really quickly, which means that they may need more staff in order to do this. Some are open all of the time as well so that you can get a loan outside of working hours and this will cost them more money in staffing as well. You have to decide whether you think that these things are worth paying extra money for.
The loans might also be dearer than payday loans which you repay more quickly. This is because you have longer to repay it so will be borrowing the money for longer. As interest tends to be calculated daily then the longer you have the loan for; the more costly it will be. However, it could be worth it if you are more easily able to manage the repayments.
You will need to think about whether you feel the loan that you choose offers good value for money. It might feel like the cheapest loan will be the best just because it costs you less but this may not be the case. You need to make sure that you calculate the full cost properly and then that you take into account what you are getting for your money. We tend not to always buy the cheapest things that we see because we are not keen on the quality and the same can be said when you are choosing lenders. You might fee that it is worth paying a bit more money.