Tips For Loan Comparison By John Johnson Personal loans , credit cards, mortgages and over drafts offered by various personal loan lenders, private lenders and companies may sound very cheap. You may be enticed by companies offering very low rates of interest. Do not just look at the rates of interest to decide on a personal loan types or credit card offering. They may have a lower introductory rate of interest and may revert back to a higher rate of interest after some period of time. What are the other things you need to know to find best personal loans?
Additional information can always simplify your decision making process. These are the thing you need to know. Make your calculation simple with the following facts. •What is the principal? •What is the rate of interest (calculated annually)? •Are there any other additional payments that you need to make? (arrangement fees, closing fees etc…)
After obtaining information about all the payments including lawyers fees and the total number of years for repayment you can calculate the actual rate of interest. Add all the possible fees and expenses. Subtract the actual money you are getting from the total amount. Divide the result by the amount you got and the total number of years and you will get the annual percentage rate. There are many online annual percentage rate calculators. These can help you in case you find math calculations difficult. Another important table that you could ask the lender is that amortization schedule. This will give the details of pay back with monthly break up of payments. It should clearly indicate the amount deducted from interest as well as that deducted from principal. A further description of APR/AER can enlighten you more.
Annual Percentage Rate/ Annual Equivalent Rate Any loan or credit agreement can have varying terms •Interest Rate structure •Transaction Fees •Late Penalties •Other factors
By law, ‘the Federal Truth-in-Lending Act (15 U.S.C.A. § 1601 et seq. )’, credit card companies and lenders should show customers the APR to facilitate a clear understanding of the actual rates applicable in agreements. You may be taken for a ride by the companies who give their interest under different terminology. Various ways to express an effective annual interest rate of 10% are •0.7974% effective monthly interest rate •9.569% annual interest rate compounded monthly •9.091% annual rate in advance By getting the APR you would know the total cost to be incurred by you in a year and hence you would be able to easily understand the additional costs you would have to pay over the year.
The other advantage
of APR is that it allows you to compare the credit and loan offers by various companies and decide which is cheaper. It is an ad-hoc method used in comparison and may not work properly if all the information is not included in the APR. Many companies add extra fees with newer terminology such that these fees escape the purview of the law. You could calculate your own APR with out using those online. A= P(1+rn) . A is the total amount to be paid for the loan including its principal, P is the amount you have received, r is the rate of interest you need to obtain. The number of years for pay back is ‘n’.
A draw back in APR is that it does not indicate penalties and other options of ARM.
Tips for you loan comparison. •Look for terms: prepayment penalties, rate reduction option, conversion of ARM to fixed-rate mortgage, lock-in periods etc… •When comparing look at current interest rates ( as applicable on the day you are comparing). •Add up lenders fees and points and then compare.
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