When shopping for a loan product Isn’t it true that the interest rate is the most important factor to consider? What if we told you that the greatest bargain isn’t usually the one with the lowest interest rate? In truth, there are several reasons that can lead a loan package with a lower interest rate to cost you more in the long run.
Additional fees and charges
Even if the interest rate is a fraction of a percent cheaper, fees and charges can quickly pile up and cancel out the savings. It’s critical to read the terms and conditions so you’re aware of these additional costs and that you factor them into the final monthly repayment figure.
Variable vs fixed rates
In the financial world, there are generally two types of rates: fixed and variable. Both have advantages and disadvantages. A fixed interest rate means you’ll never have to worry about your repayment amount changing, which may be a major help when it comes to budgeting and peace of mind. A fixed interest rate in most cases is more expensive.
On the other side you have variable interest rates. These tend to be lower than fixed interest rates, which will, of course, help you save money. However, because it’s variable, the lender can modify the rate at any time (albeit it will be influenced by the RBA’s rate changes). Your monthly repayments may vary significantly over the life of the loan due to the possibility of fluctuation.
Length of the loan
The longer you take to repay a loan, the more interest you’ll accrue. A shorter-term loan will often come with a higher interest rate. So, while 5% over 5 years may appear to be a good deal compared to 7% over 3 years, the latter scenario will result in you paying less interest.
Finally, if you’re debating which loan to take out but are not sure which is the best fit for you and will save you the most money in the long run, keep one thing in mind. Make sure you’re comparing apples to apples.
That is, break down each of the loan packages and lay it all out so you’ve taken all the ins and outs of each into consideration. Doing this can and will help you save (potentially a lot of) money. If confused of what to do contact your accountant who can answer all your questions.
Talk to us about finding you the best finance deal for you
At Berra Finance, we’re here to provide our expert assistance to ensure you’re getting the most ideal outcome possible. We know you’ll like what you see. Drop us a message to discuss the next steps in your loan application.
DISCLAIMER: The information contained in this document is general in nature and should not be relied upon as legal advice. Berra finance does not warrant the accuracy or completeness of any representations made in the document or that the material is suitable for any purpose. You are responsible for assessing the material and seeking your own legal or financial advice. To the fullest extent permitted by law, Berra finance excludes all liability for loss or damage (including indirect or consequential loss or damage) which may be incurred in connection with your use of or reliance on the material contained in this document.