Personal Loans and APR - Is that all that matters?
The advice from financial advisers has always been, if you are
thinking about taking on new loan or any type of credit
agreement, shop around. These days, there is such intense
competition among lenders to get your business, that special
offers and extremely low interest rate loans are always on the
market somewhere, if you are willing to search them out. It is
also worth checking out less well known lenders and not just the
high street banks, as some of the best deals around will be from
these lenders.
The government has sought to facilitate this by providing a
standard benchmark figure that can be used to price loans from
different lenders. This figure is the APR, or annual percentage
rate for interest on the loan. It is calculated in the same way
by all lenders and should give you an accurate and fair view of
the real cost of any credit you take on. So for instance, if a
credit card is tempted to tell you that they only charge two per
cent interest, they will have to tell you that this is their
monthly rate, and the APR is in fact, something more like twenty
eight per cent.
However, the APR is not the only thing that you will have to
check out when you are shopping around for credit. There are
many other very important factors that will also effect which
credit offers are the best deals. For example, as well as
interest, it is possible that a loan will include other fees
that do not go into calculating the APR. Some loans, especially
mortgages, incorporate arrangement fees or set up fees that you
will also have to take into account. Many other loans will have
early termination charges that are added to the bill if you wish
to repay the loan early.
Flexibility is also a consideration and you may want to check if
over payments, or repayment holidays are permitted on your loan.
This means that you can put a little extra against the loan when
you come into extra money, or take a break from payments if you
lose your job for example. This is very important in long term
loans such as mortgages.
Some credit cards will also offer you low APRs but then charge
very high penalties if you miss a payment. Others will offer you
low APRs but only for an introductory period, after which the
APR jumps to a higher level. You should be aware of these types
of offers. Even zero per cent balance transfers can be subject
to a balance transfer fee, that in effect means you are paying
for the balance transfer, and it makes little difference to you
whether it is as interest or as a fee.