Cost of loans

balooney2000

We have been looking at the cost of financing £19900 over 5 years through an unsecured personal loan.

We came up with the cheapest offering 5.7% APR at a monthly rate of £383.04 per month.

However most others came back as 7.4%APR at a monthly rate of £395.55 per month.

For a difference of 1.7% APR in the interest rates the extra £12.51 doesn't seem enough. What we wondered is if the monthly rate quoted at 5.7% is really that APR - but have no idea how to try and work this out.

Help appreciated, thanks.

HappyMJ

Work it out manually then 19,900 multiplied by 5.7% times 5 years divide by 2 (as you are paying principal and interest off)...then add that figure back to 19,900 and divide by 60 months. You'll get £379.

Do the same with the more expensive loan 19,900 * 7.4% * 5/2 add 19,900 divide by 60. You get £393.

It's not much difference to your figures which also take into account compound interest and any possible fees.

Rafter

As long as they both clearly say APR you are ok - the rate will include any funny up front fees or peculiarities to give you a comparable rate.

Whether you actually get that rate when you apply is another thing! Following an unhelpful EU rule, only 50% of applicants have to be offered the advertised rate - the rest can get offered anything you like!

Be very careful when being quoted interest rates by garages - although the paperwork will have to include APR, often the interest rate they quote is as a percentage of the original amount borrowed - which understates the total bill because with every payment you make the amount you borrow will be falling.

Good luck

R.

pheonixrising21

Rafter wrote: »

As long as they both clearly say APR you are ok - the rate will include any funny up front fees or peculiarities to give you a comparable rate.

Whether you actually get that rate when you apply is another thing! Following an unhelpful EU rule, only 50% of applicants have to be offered the advertised rate - the rest can get offered anything you like!



R.

Sorry, thats wrong. Only 50% of successful applicants have to be offered the advertised rate. The lender can reject as many applicants as they want and these are not counted. If 100 apply, they can reject 97, give two people the advertised rate and one person another (higher) rate. In this scenario, 2% of applicants get the rate, but 67% of successful applicants get the rate and so the lender is within EU rules.