When customers are looking for a consumer loan, they are primarily interested in the interest rate and sometimes forget other elements that can be important. How important is the interest rate for borrowing costs and how do I get a cheap consumer loan? As credit specialists, we know the answer.
Consumer credit, interest rate and payback period
With a classic consumer loan, two factors influence the costs: the interest rate and the payback period. Customers often compare different interest rates to get the cheapest offer, but sometimes forget to take the payback periods into account. The fact is that a consumer loan with a better interest rate is generally more expensive for a longer period. We take the example of a consumer credit of USD 10,000:
- With an interest rate of 7.9% over 12 months, the loan costs a total of USD 417
- With an interest rate of 5.9% over 24 months, the loan costs a total of USD 609
In this example, the consumer loan at 5.9% interest is almost 50% more expensive than the offer at 7.9%! The difference lies in the payback period, which is 12 and 24 months.
Other important points
Not only the total loan interest is important, but also the other cost points of the loan have to be considered. In certain cases, banks charge additional costs when it comes to consumer credit. For example:
- Installment insurance secures the repayment of the monthly installments (eg in the case of unemployment). This insurance has special modalities and means additional costs for the customer.
- Will early repayment fees apply?
- Are there any fees for a billing request?
Consumer credit and better interest rate – how much can you save?
For our example, we take an “average” consumer loan of USD 25,000 over 36 months. How much can you save with an optimally low interest rate with this offer?
- Interest rate of 8.9%: monthly rate of USD 789 for a total interest of USD 3,434
- Interest rate of 7.9%: monthly rate of USD 779 for a total interest of USD 3,048
- Interest rate of 6.9%: monthly rate of USD 768 for a total interest of USD 2,662
In our example, the following applies: Every time the interest rate drops by 1%, the borrower saves USD 386. For a consumer loan of USD 25,000, the cost differences due to the term are much larger than due to the interest rate. The same loan of USD 25,000 with an interest rate of 7.9% already costs USD 4,086 if it is repaid within 48 months instead of USD 36 (a little more USD 1,000).
Request the help of a specialist
Are you still hesitating to take out a consumer loan? Don’t you know which interest rate and which term suit your situation? We can only recommend that you contact an experienced credit broker. They can take over your dossier and compare offers so that you benefit from the best offers on the market.