The most important factor in selecting a loan is its price. However, when you search the Internet for options, you will soon find that comparing loan prices with each other can be almost a superhuman task.
Of course, the final amount always depends on your creditworthiness, guarantee or income. But you certainly want to have at least an approximate idea of how much you actually pay. Only after you have found the most advantageous options will you start to arrange a tailored loan and its exact price with selected companies.
Not all companies have credit calculators
Credit calculators are the first step in raising awareness of interest rates and APRCs. However, only two-thirds of financial companies will offer you these on their site. You must contact others for more information. The problem is that even if you encounter a credit calculator on the provider’s website, you are far from winning.
Some are not functional enough and do not display all the information. For example, you might find out the amount of your monthly payment, but you won’t find out what is included in it. For other companies, you will find calculations based on a preferential interest rate, which you will only achieve under certain conditions. The calculator often works with attractive prices, but the reality is somewhere else.
How to get out of it? Focus on interest rates and interest, and no calculator will deceive you anymore.
Interest vs. interest rate
Interest is the remuneration paid by the debtor to the creditor for lending him money. The value of the interest may vary depending on the duration of the loan and its amount. The size of interest is then expressed by the term interest rate. This is usually set as a percentage. We could say that the interest rate is a measure of the current price of money.
Thus, the interest rate is an increase in the amount originally borrowed for a certain period of time in percent. The annual interest rate is most often used. In contracts and documentation it is referred to as pa, which is an abbreviation of Latin per annum.
How to calculate the amount of interest?
First of all you have to find out the interest rate. The company website or contractual documentation should indicate what values the interest rate is roughly in. In the meantime, you will need to work with an approximate percentage, as the exact amount is usually not found until you first contact your financial company. The interest rate is also affected by the riskiness of the loan. Therefore, the lender will first ask you for the necessary documents and then evaluate your creditworthiness. The less risky the loan, the more advantageous the interest rate the company is able to offer.
In the next step, check how the installment calculation is set. Annuity repayment is used for most mortgages and consumer loans. This means that in each installment you will pay part of the principal and interest. Principal therefore decreases every month. Given that interest is calculated from the principal, it is easy to deduce that each month the amount of interest will be smaller and smaller.
You may already be clear that you will not be able to deal with a simple formula in this case. At the same time, you probably don’t want to spend eternity with the calculator in hand when comparing loans. Fortunately, there is a pretty easy solution to help you determine the amount of your monthly payment. Just open Excel and use the PAYMENT function.
You need to know the amount you want to borrow, the number of months you will repay and the interest rate. Write this data into a table in Excel. Enter the PAYMENT function in the new cell and enter:
= PAYMENT (interest rate / 12; number of months; loan amount)
The number you received determines the amount of your monthly payment. Then multiply this by the number of months you pay back and the resulting amount you have to pay is born.
What else will affect the final price of the loan?
Do you think that after winning the interest you have won and you can start comparisons? Unfortunately, not far. When choosing a loan, you must also take into account the fees for handling the loan, administrative fees or various other items that need to be paid when setting up the loan. Mostly they should be accounted for in the APRC, but this is not always the case. Try searching for contracts and the company’s website.
Some expenses are also given by the type of loan. If you are going to handle an American mortgage for which you guarantee real estate, you will need to estimate its price. Find out if you have to pay the appraiser yourself or whether this cost is handled by the finance company.
An interest-free loan really exists
Can there be a loan without interest? Of course. And it’s not just loans from friends and family. Some non-banking companies will also give you an interest-free loan. Most often they are so-called payday loans or micro-loans. Be careful, however, and read all the conditions properly. Although 0% interest sounds appealing, such a loan is not always advantageous.
The company may charge you different types of fees, which in the end will make you pay much more than a standard interest loan. If you really want to save, bet on the first free loan. If the name of a financial product is defined in this way, it is not possible to zigzag and you really need to get the loan for free. Would you use such a financial injection? Find out more in First Free Loan.