Working out the true cost of a loan

You can’t and shouldn’t base the cost of a loan purely on the advertised interest rate, especially when it is a ‘typical’ per annum rate. Sometimes of course rates are per month so look out for what may look great value as a headline. The internet is great for finding out about the range of financial products including loans and alternatives to loans that are available but it is also a great place to find out what various terms mean and how to get the best deal.

Some mathematics may be needed but there are places online that will help you work out the cost of a fixed rate loan. Of course there are some other factors that come into play most importantly the term of a loan, you may of course plan to pay back earlier though. If you pay back earlier you will pay less as you will pay interest for less months but do be aware of the potential cost of paying back early. Also if you know you can pay back a loan earlier than the maximum term try taking out a shorter term as you may get a lower interest rate on short term loans. If you do go for something you can’t afford though you may end up paying charges and much higher rates so it is a good idea to be careful and maybe give yourself some leeway. Having said this you could always get out a new loan at the time at a lower rate to pay of the existing loan which may work out more cheaply. When doing sums consider different timeframes and the options of moving your debt around: refinancing it regularly though it involves hassle can save you significant amounts. Moving around debt saves money not least when you have a credit card: though often considered as separate to a loan it is a loan and if it will work out more cheaply for you than a standard loan you should look into a credit card.

Credit cards often have very low introductory rates or even 0% introductory rates: the result is that you may for a short time pay less elsewhere: long term though you may pay a much higher percentage. There are other advantages though and one is being able to regularly balance transfer which though it involves a charge normally, can mean you always have a low or zero interest rate: this kind of re-financing works because credit card companies offer these cards with the hope of ensnaring you long term where you will pay a higher percentage: hopefully though you will be able to be disciplined and close cards down once you pay them off. Also with credit cards though you have the advantage that you can have the money ready to use when needed and only pay when you use it whereas with a loan to cover several things you may be paying interest on money that is still sitting in your account waiting to be used.