Money lenders such as banks, credit unions or other financial institutions are earning huge amount of money from the
interest rates that you pay on the loan. Other earning methods include late fees, penalties,
hidden fees and many more. When you go searching for a
Loans try finding a loan with low interest rate and consider the following.
APR
APR is the annual percentage rate and by law any lender must tell you exact details about it. APR is calculated by using the actual laon amount, interest rate, fees and any other extra charges. APR offered to you by several lenders is a good way of comparing those loans.
Hidden Charges
Remember, you will see several companies telling you about monthly payment like you only have to pay this much every month. But those monthly payments may not include fees and charges.
Risk factor Changes Rate
The interest rate is greatly affected by the risk factor involved in lending the money. The risk factor is greater in an
unsecured loan then in a
secured loan. The creditor gives a lower interest rate if you make a loan secured by binding the loan with a security such as your home.
Risk Calculation
The lender will calculate the risk by using your
credit history, type and value of collateral, personal information and other things reflected on your
credit report. A person with
bad credit is a high risk customer so huge amount of interest rates will be charged.
Mortgage has two types of interest rates. One is fixed and the other is variable. Both of these are listed below.
Fixed rate loans
In this rate you will pay a fixed interest rate for each and every payment you make.
Advantage
Interest rate fluctuates all the time. If it goes higher then before it will not affect your monthly payment rate and you can also manage your finances in advance.
Disadvantage
Some times the interest rate falls but you will not be able to get that advantage.
Fixed rate switching
Refinancing however is available if you still want to switch. The current lender might take certain fee.
Calculate that if the new rate plus the fee charged makes you loan repayment easier only then switch otherwise there is no need.
Adjustable rate Loan
Adjustable rate fluctuates with the Prime interest rate that US Treasury charges its customers. The advantage is that your rate also declines if the interest rate falls in the market and vice versa.
Disadvantage
You cannot properly budget your finances as sometimes the interest rate is high and sometimes it is low.
When to choose Adjustable rate
You should choose this if the interest rates in the future are going to fall. If you cannot budget for such future interest rates then opt for a fixed rate.
Repayment Options
Repayment of the loan depends on your contract with the lender. Most lenders require monthly payments and only a few allow yearly payments.
Redemption Penalty
A lender will try to get this penalty listed into your contract. If you get some money and want to pay the entire loan before the loan term then according to this penalty you will have to pay a fee.
Are there flexible loans
Yes. Such loans are present out there and you can repay your loan earlier without getting penalized. However, interest rate with such loans may not be so competitive.