How to Effectively Compare The Cost of a Loan

With so many lenders and financial products available to you right at your fingertips, it is useful and even necessary to compare loans in order to get the best deal possible.

It is important to note that it is a mistake to simply apply to any loan you come across to keep your options open or in the hopes of approval. Making too many applications at any one time can seriously affect your credit score as each time you make an application, a lender will leave a search foot print on your credit file. Whilst it is not harmful to have a few of these, having too many can ruin your chances of getting approved for a loan at all.

Loan comparison

Comparison Websites

The obvious answer that most people would say would be comparison websites, there is no doubt that price comparison sites play a huge role in loans industry as a whole. This is especially the case with lending moving online to the point where pretty much every type of loan can be accessed online, some exclusively online.

Using comparison tables and websites are an extremely effective way to see a number of financial products in one place and one time.

It may be of interest to note that the Financial Conduct Authority has recently ruled that it is a requirement for all high-cost short-term lenders to be featured on at least one price comparison website. Furthermore, the FCA have stated that lenders must include a clear link and provide a reference to price comparison websites on their own websites as well. Ideally, the FCA would like them to place this near the apply now button to drive traffic through the comparison site so as to give the consumer options.

Be aware as to how comparison websites make their money, however. The top result is not always the best as the company may have paid for this position, so you will need to study the comparison table carefully. The comparison site will make money off you clicking through a link as well, so this may influence the order of the list.

Check out the APR

The APR, or Annual Percentage Rate, is essentially a universal measure across the globe for being able to compare financial products, including loans, credit cards and insurance packages. Checking the APR is a very useful way to compare the overall cost of a loan, as well as other forms of finance.

One thing to note with this is that if you come across a loan which is a few weeks or months old, the APR may be inflated and may appear higher than it actually is. The reason for this is because APR is based on annual calculations.

Interest rates

Interest Charged

As a general rule, the longer a loan equates to more interest charged. The reasoning behind this is because you are paying for the convenience of holding on to the funds for a longer period of time.

Make sure you repay earlier rather than later in order to save money. Also read the terms of the loan to see how long it is to save yourself from taking out an unnecessarily long and expensive loan.

Make use of loan calculators

Sites like My Jar include a loans calculator so you can toggle with the different loan amounts and loan terms to see exactly how much you will be paying back. This gives you a clear indication of the cost of a loan.

If you can do this across a number of sites, you should get a good indication as to where the best deals are going to come from. From there, you can begin to apply to the loan which best suits you.