It is human nature to get everything as cheaply as possible. This not only applies to the range of goods, but many also want cheap loans. But many focus on the interest shown in advertising. But that a loan is cheap requires more than just interest.
What does effective APR mean?
The banks differentiate between debit interest and effective annual interest. The borrowing rates are usually lower because the effective annual interest rate also includes the other costs, which of course makes them more expensive. When looking for a loan with low interest rates, consumers often make the mistake and only focus on the borrowing rate. It is often overlooked that a loan also includes other costs, such as a processing fee. Advertising also makes it very easy and has a tempting effect on customers. As a rule, the borrowing rate catches your eye when you look at it. The effective annual interest rate is then displayed in a different place in the advertising with a significantly smaller font.
What are the differences in interest rates?
But it’s not just the effective interest that makes a loan expensive or cheap. Differences are also made here. The promised loan with low interest is usually only available to a certain group of people, because the banks have different effective annual interest rates. One speaks here also of interest rates dependent on creditworthiness. In plain language, this means that if a borrower has excellent creditworthiness, he will enjoy low interest rates. However, if there are dark spots on the white vest, this usually leads to an increase in the annual percentage rate.
What is left for the consumer?
The consumer can only do one thing not to rashly choose a low-interest loan. There are numerous loan calculators where the loan seeker can compare the offers of the individual financial institutions. This is the only way to find the right loan with low interest. With these online loan calculators, a loan can be applied for directly online.