If you are looking for a loan then it is wise to compare costs to make sure that you are not paying more than necessary. It is important to understand how to do this so that you do not accidently take out a loan that is dearer than other options. It might seem obvious to just compare the interest rates, but there are many aspects that you need to consider.
Choose the right loan
It is important to start by choosing the right loan for the job. There are many different types of loans and they are suitable for different things. It is wise to find out a bit more about them so that you can choose the right one for you. You will find that the costs vary a lot between them as well. One of the most important things is not to borrow more money than you need. Some loans will offer you specific sums of money and it may be tempting to go for these because you will have a bit extra than you need so you can have some money to have fun with. However, as we have to pay for every bit of money that we borrow it is much better to only borrow what we need rather than more than we need. It is likely to be cheaper if we do this but do check this.
As well as how much you can borrow it is worth comparing how you are expected to repay. Loans differ in this too and you need to make sure that the loan has a repayment plan which will suit you. Make sure that you will be able to afford the repayments by thinking about how much money you normally have available and whether this is something that you could accommodate.
Compare interest rates
It is important to compare the interest rates between loans of a specific type once you have picked the right type of loan for you. However, you need to be aware that interest rate will change and the lender with the best rates now may not be the best one in a few weeks’ time. It is hard to predict who might change and when though, even if you spend a lot of time looking at past rates you cannot really make an accurate prediction. You also need to think about the fact that the base rate may go up and then all interest rates will rise but not all by the same amount. Therefore although interest rate is something to bear in mind, it should not be your only basis for choosing one loan over another.
Consider other costs
It is also worth looking at the other costs of the loan. Some will have set up fees which you have to pay on top of the interest. There will also be fees for other things such as late repayments, missed repayments, early repayment fees and things like this. These will vary between lenders and so it could be worth looking at the terms and conditions to find out what fees there are. This may be tricky though as they are not always that easy to understand and so it may be better to speak to their customer services department and ask if they can tell you about all of the fees.
Look at term and calculate total cost
How much a loan cost in total is not as easy to calculate as you might think and it is the best way to compare a loan. For example, a mortgage will have a much lower interest rate than a credit card, but because you borrow for such a long period of time with a mortgage you will end paying back a lot more in interest if you calculate it in monetary terms. Therefore you need to check this when you are comparing loans. Find out how many repayments there are and how much each will be so that you can add up how much you will be paying back in total. Make sure you include any set-up fees. If you can get this figure for each of the loans that you are comparing, then youwill be able to see exactly how much you will repay for each and it will be simple to see which of them will be the cheapest for you.
This may seem a lot of work, but it is worth it as you could end up saving a significant amount of money. By just going with the loan with the lowest interest rate you could end up paying more because you repay for longer and have extra fees to pay as well. So make sure that you properly compare the costs of the loans and you then can be sure that you really are going for the cheapest one.