If you are thinking of applying for a loan, you may be asking the question, what are the costs associated with a personal loan? Borrowing money is a big commitment for an individual's financial future, and choosing the wrong deal will have a negative impact. So you need to take extra care when choosing a lender to borrow from.
Obtaining the cheapest loan should be every person's top priority, but this is not always possible, especially if you have not compared the costs. The first factor to take into consideration is to determine how expensive these types of loans are. You can find this out by checking the APR (Annual Percentage Rate). An APR is the interest rate that is charged by the lender.
As well as the APR, lenders or brokers will also charge a setup fee. This is a one-off charge that you pay when your application is approved by the lender. This fee is normally added to the total loan amount. The arrangement costs on unsecured loans are far less than on mortgages and secured loans.
The term of your loan will have a major impact on its cost. As most people will choose a lower interest rate, a low APR over a long term might mean that the borrowers pay higher interest rate than over a short term. So you will have to choose between a lower monthly repayment or lower amount of interest for the overall amount borrowed.
Most loans and mortgages have an early repayment charge or fee. This penalty is a percentage of the outstanding amount commonly found in products that include long term fixed rate or discounted rate. It is therefore important to read the terms and conditions of the agreement before signing as the early repayment fee will be stated on your contract.
Even if you are not liable for paying any early repayment fees, most lenders will still charge an exit fee when you wish to repay the lender's funds early. This fee is the administration charges that are involved in closing the account. You should find out how much you will be liable to pay before proceeding.
Finally, if you ask “What are the costs associated with a personal loan?” you should be aware that some lenders offer payment holiday options so that you can miss one or two months payments. Interest will still be applicable on the balance, and if you go for this option, you will end up paying a much higher APR. People who are facing financial problems may opt for a payment holiday until they get their finances sorted again.