Credit: How the Interest Rate is Composed?On December 28, 2019 by admin
When comparing different loan offers, the interest rate plays a particularly important role. The final cost of a loan depends largely on the amount of interest. You can find out how the interest rate on a loan is calculated in this article.
Pay attention to the interest rate before deciding on a loan offer
In certain situations, it may make sense to take out a personal loan. However, you should not choose any offer, but compare several offers with each other. The costs associated with a loan differ enormously from one another in some cases.
If you get information from a potential lender, you will usually find a loan calculator on their homepage. There you can enter how much money you need and in what period you want to pay it back. Most of the time you will be shown the costs you can expect to see.
There are big differences especially in the interest rate. Many providers lure with very low interest rates. However, the interest rate advertised in this way is often only ideally applied – to borrowers who have the best prerequisites. The current interest rate depends on how your situation is. Above all, existing claims and your previous payment behavior, but also personal criteria such as your age, have an impact.
APR vs. Nominal interest rate – an important difference
Lenders check your creditworthiness by obtaining information about your creditworthiness from the Central Office for Credit Information. If negative facts are noted there, you can expect that the interest rate will be higher. In the worst case, you will not get any credit if you are not considered creditworthy.
How are interest rates on a loan composed? The difference between the effective and the nominal interest rate is important. The consumer credit law stipulates that loans in the country are calculated at an effective annual interest rate. You will then see all the costs that arise each year. This will help you better assess whether you can handle the financial burden of repaying the loan.
Interest rate: The actual cost is crucial
The nominal interest rate only quantifies the pure interest rates. The APR also includes all other costs, such as fees and other incidental costs. For you as a borrower, these are the actual costs that you will face. This can mean that a loan looks very attractive at first glance if you only look at the nominal interest rate. However, the annual percentage rate can sometimes be significantly higher and lead to another offer actually being cheaper.
When choosing a loan, also consider that longer terms lead to higher overall costs. You can save a lot of money by quickly paying off your debts. You can get loans not only from a bank, but also from online lenders such as eny Finance. You will often find better conditions here. Submit a non-binding credit inquiry today to benefit from our excellent price-performance ratio and favorable conditions.