Costs of a Loan
Loans in today’s world are useful whether it is for consumption, or for aiding in the creation of an asset. Ideally, we would all like to enjoy today what we expectantly earn in the future. Most of the world’s economy function on this principle of debt, and there is nothing inherently wrong with it. However, the prudent thing to do would be to do our due diligence and research before committing to any loans. This ensures that the net cost to us is the lowest. This cost includes interests, processing fees, and administrative charges levied by banks or financial institutions.
Getting a Good Understanding of Costs
Interest rates chargeable can be of two types: (i) flat interest rates which mean that the interest on the principal amount at the contracted rate for the loan tenor is charge up front. This rate is then distributing along the loan tenor to be repaid along with the principal, and (ii) reducing interest rates which mean that interest is charging at the end of each month based on the principal outstanding.
The benefit of reducing interest rate is that one ends up saving significant amounts of interest when compared against a flat rate of interest. Therefore, it’s crucial and necessary that one considers the type of interest being charged and not just the rate, as it factors into the total cost.
Avoiding Additional Costs and Charges
Many banks often advertise marginally low interest rates, but there are often high ‘hidden’ charges. These charges include imposing a heavy penalty for failure of electronic credit, or not being able to remit the installment on time or at times even charging you for a check failure! Installment schedules are often structuring to be manageable and most people do manage to fulfill them. However, there are always unfortunate circumstances that lead to occasional defaults. As such, these defaults should not be penalized too heavily or be too exorbitant. Additionally, one needs to inquire about inspection, notices and all other recurring charges that might affect your net cost of borrowing. Always remember that loan is a long term commitment and the charges need to be considered in totality.
Other important factors while making a loan choice are: ease of access and faster processing. The margins in ease of access and faster processing are less but one should do the due diligence as far as after sales support of banking products and financial products are concerned as most of the financial institutions are very aggressive in sales and marketing whereas the after sales support is very poor and frustrating. Having a professional and efficient sales support can often save you time and money in the form of opportunity costs.
For a thorough and detailed explanation of costs involved feel free to approach our staff of licensed moneylenders.
You may also choose to drop us a message and we will get our manager to contact you as soon as possible!