When we contract a personal loan we must not only look at the fee, which is the amount of money we will pay each month, but also we must take into account other factors such as the interest rate, the repayment period and the additional costs, which will determine the final price of the loan.
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Does a low interest rate ensure that a loan is cheap?
With an average APR in our country of 7.60% for loans, well above the European average of 5.93% according to the latest estimate of the Bank of Spain in May of this year, it is normal that at the When hiring a loan, let’s look at the offers with the lowest interest rates. But even if a loan has a low interest, it does not always mean that it is the cheapest option.
Logically, the lower the interest, the better. For example, if we contract a loan with an amount of 4,000 euros over five years with an interest of 5%, we will pay a total of 4,529 euros, while if the loan has an interest of 6%, we will pay more. Specifically, 4,640 euros.
But, as we have commented above, interest is not the only thing that affects the final cost of a loan. If we go back to the previous example, if the 5% loan had an opening commission of 3%, we would pay 4,649 euros. While the 6% loan without an opening commission would be cheaper. To find out, we can take a look at the APR. The first would have an APR of 6.44% and the second, 6.16%. This measure is used to compare credits, because it not only takes into account interest, but also other expenses.
Can a loan be made cheaper by shortening the repayment terms?
A clear and blunt answer is yes, it can. One of the keys to ensuring the reduction of the cost of the loan is in the repayment period. The longer it takes to return the requested money, the more interest will be generated. This accumulation of interest makes the loan more expensive.
Employing a free loan simulator, we can calculate how much we will pay each month and in total for the credit. If we play by increasing and decreasing the repayment period, we can see the variations in the price of the monthly installments and in the total price of the loan. We should try to reduce the return period as much as we can, assessing whether we are going to be able to pay the price of the monthly fee. It is advisable that the fee does not exceed 30% of our income to avoid over-indebtedness.
Commissions and expenses of personal loans
Another important factor to lower the price of a personal loan is in the fine print, especially with regard to commissions and the cost of linked products (for example, insurance) and the account associated with the loan (if it has a commission maintenance), which end up making the price of the loan more expensive. Currently, many financial institutions offer personal loans with practically no additional costs.
For example, him Cofidis Project Credit It has no commissions or linking costs and can be hired without having to change bank. We can ask for up to 15,000 euros to be returned in up to eight years with an interest rate from 5.07% APR, one of the lowest interests in the market. We can take advantage of the simulator on the Cofidis website to play with the term in order to find an acceptable quota and adjust the final price so as not to overpay.
It’s very important establish comparisons between at least three credit institutions and do not contract the first option that is presented to us. The reason is that each financial institution puts financing products on the market with different interest rates, trying to position itself in a very competitive market, so it is possible to find very attractive offers for consumers.