When you are looking for a loan, you need to compare loans by working out the total cost of repaying the loan. Although many web sites allow you to compare the APR costs, working out the real total cost of a loan is a little more complicated. However, it is important that you do this so that you can budget accurately and also so that you can find the best deal for your needs.
Estimating the total cost
The quickest and easiest way to estimate the total cost is to multiply the total amount borrowed by the APR, and then multiply this by the number of years. For example, if you borrow ?10,000 and the APR is 10% for 5 years, then 10000 times 0.10 times 5 equals ?5000. This is the interest you will pay, so add this to the total amount borrowed and then you know to borrow ?10,000 for 5 years at 10% costs you ?15,000 in total. Of course, this is only an estimate and will be higher than the actual amount as interest payments are reduced as you pay off the amount.
Other costs
There are obviously other costs to add to this total amount, such as loan processing fees, payment protection insurance and any other fees you need to buy to set up the loan. Add these to the total cost mentioned before and you have the total that you need to pay back over the loan term.
TAR
If you are discussing the total cost of the loan with your lender, then ask them to give you the TAR. This stands for Total Amount Repayable, and will let you know the total you have to pay back during the loan term. The difference between the amount borrowed and the TAR will tell you how much the loan is costing. A smaller difference between these two numbers means a better deal for you.
APR
As well as knowing the TAR, you should work out how much you need to repay each month. To do this, divide the TAR by the total loan term in months. For example, if you were paying back ?14,400 over 12 years, then you will pay back about ?100 a month (14,400 divided by 144 months). Of course, this is also an estimate as the TAR amount you have calculated is an estimate. To get the exact amount, ask the lender.
Adding penalty costs
When working out the total cost of a loan, you should budget into the equation some penalty fees. Although you might never pay any of these fees, to allow for a few late payments will help you to be prepared in case. It may also help you to decide between two similar loans, depending on the amount they charge for penalties and late fees.
If you are unsure, seek advice
If you are looking for a loan and are still unsure how much you will need to pay back over the whole term, then consult an independent financial advisor, who can help you work out how much you are paying for each loan, and which is the best deal.
The most effective factor that takes your attention while availing a loan is its cost. A low cost loan option always lures you, as it saves a considerable amount on your loan. To cut the cost of your expenses, a low cost option is an essential requirement. A low cost loan is only possible when it is available on a lower interest rate. Since, the cut throat competition among the lenders and some other factors has lowered the interest rate considerably, your chances for availing a low cost loan has become possible. Now, lenders are providing these services in the form of cheap loans.
Apart from those factors that make your loan cheap, you too can make it so by applying some methods. Taking account of your personal circumstances, you have generally two options for availing a loan i.e. secured and unsecured. Your good credit record can definitely yield a better deal for you. Whereas, with unsecured option of the loan, collateral or security is absent, and interest rate are higher to secured one. However, still you can make it cheaper, by comparing. Since, several lenders are competing in the market, you can compare among the available options to avail the lowest possible option.
The loan even with a lower rate of interest but repaid over a longer period can be a costly affair. You always pay less as interest, when the repayment is of shorter period. Some times, you are lured by lower interest rest, but the several hidden cost like, processing fees, penalty charges, etc. make your loan much costly. So, when you go for a loan, you first try to get the every ins and outs of the loan clearly.
You can obtain the cheap loans to finance any of your expenses. These expenses are generally buying a car, renovation of home, college fees, outstanding bills, and consolidation of the debt.
Chap loans are also available to the bad credit holders. You can avail the cheap loans even after possessing, CCJs, IVAs, defaults, arrears, etc. However, you will be charged with a somewhat higher rate of interest for this.
Your search for a low cost loan now comes to an end with the provision of cheap loans. A judicious decision about the selection for a loan, initiate the way for making your loan cheap. You can also take the help of comparing agency for this that will provide you with the best option according to your profile.
Both Peter J Kenny & George Kane are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter J Kenny has sinced written about articles on various topics from Credit Cards, Finances and Banking. Peter Kenny is a writer for thriftyscot.co.uk, please visit us at and. Peter J Kenny's top article generates over 22200 views. to your Favourites.
George Kane has sinced written about articles on various topics from Car Loans, Poor Credit and Unsecured Loans. George Kane has no formal degree in finance, but years of work that he has put in the finance industry makes him perfectly eligible to be called an expert in financial matters. To find. George Kane's top article generates over 110000 views. to your Favourites.