Sometimes, you need extra finance and apply for a loan. In this rush, you often need to pay more attention to details like the annual percentage rate of interest on that loan. However, it is not as a tiny detail as it may seem at first, and it ultimately determines how much you will get back when you borrow the money.
Today, we will look at several lenders with different APRs. Let’s find out why each has such a rate and why customers choose each in unforeseen situations. Let’s also calculate how much you will have to pay to one or the other lender for loans up to €500 with a bad credit history.
Why is it important to know your loan’s annual percentage rate?
When applying for a fast loan, it is always a good idea to at least glance over the credit agreement. Once familiar with the payment schedule, pay attention to the annual percentage rate. You will see an APR of around 40-50% in the relatively small print. This is the total cost of your loan.
The question immediately arises: Why is there so much? As you can imagine, you are paying 1.5 times that amount for your loan. Sometimes, the rate can be over 100%, so you pay back twice as much to the lender. Of course, nobody wants to pay that much, but does anybody think about it at the time of the loan? That’s why looking for different options with the best rates is essential.
Which determines the interest rate?
We have learned that loan interest rates can range from 4% offered by banks or financial intermediaries to 100% or more. So, let’s find out where these figures come from and why they vary so much for different types of personal loans.
The interest rate components are pretty similar, and they are:
- The interest on the loan – this is what the lender states, and is usually between 2 and 30%;
- The fee for drawing up the contract – this varies from lender to lender;
- Servicing your loan;
- Other individual costs are determined by the lender.
These costs vary depending on the loan type or the profit the lender ultimately wants to make. Lenders are, therefore, obliged to indicate the total annual percentage rate of interest on the loan so that customers can compare different offers and choose the most appropriate one. Our website directly summarises the actual interest rates of the various lenders.
Let’s compare some personal loan rates
We have selected several different options to compare the annual interest rates on personal loans clearly. Let’s calculate how much a €500 loan with one or the other institution could cost us.
Citadele – loan from 7.9%
Banks usually offer their customers the lowest interest rates on loans, but not everyone can get a loan there. When we indicated that we wanted to take out a loan of €500 for six months, Citadele’s loan calculator, available on its website, gave us an overall rate of 32%.
Yes, the advertised rate of 7.9% is just your interest payments. The total cost is already 30% of the loan amount, and you must pay it back. Ultimately, you will repay the bank around €540, which may not be that much – it’s up to you.
Banknote – fast credit from 40% APR
The non-bank lender Banknote does not boast a favorable interest rate. True – their advantage lies elsewhere. They could be more picky with their customers when deciding on loans. If you have an official job and no debts, a loan from a Banknote will easily be yours.
True, if you borrow the same 500 euros for six months, you will pay them back almost 564 euros. This is slightly more than the bank, as their annual interest rate is nearly 52%. It seems this is almost the highest rate, but remember that there is also a lender with a rate of 100% or more, where credit is available for debtors.
Latcredits – personalised loans from 6.9%
Here, financial intermediaries, including Latkredits, can boast favorable interest rates. This is because, by cooperating with more than 30 lenders, they can choose the most advantageous credit agreement for the customer. However, 6.9% is not the annual percentage rate of the loan but the customer’s interest rate.
However, we could not be sure because we could not immediately read the Latkredits loan agreement. This is understandable because to make an offer, you must fill in an application form and select a specific loan already in the file. Then, you will also be able to see the payment schedule and other loan details.
Choose according to your possibilities
We understand how difficult it can be to keep a cool head when choosing a loan or credit card. After all, when a loan becomes the only way to get money, you may not have to repay almost twice the amount. It is, therefore, essential to read the loan agreement calmly and calculate how much you will spend to repay the loan.
If you are happy with everything, take out the loan. You should know that black loans usually have the highest interest rate if you are in debt. This is not done to get you into more trouble but to get you to take a small amount of money and be able to repay it peacefully from your income. Borrow wisely!