How much will the loan cost me?
Another important question you should ask the partners who contact you is “How much will it cost me to borrow this money?” Whether you are purchasing a home, automobile, television, or pizza, one of the most important factors is the price. You can easily overpay for any of these products if you fail to understand the price of the product or fail to compare between competing providers.
For traditional installment loans, the price calculation is based on an annual percentage rate, or the APR.
The APR describes the interest rate for a loan based on a cost for a whole year (annualized), rather than just a monthly fee/rate. APRs are common for mortgages, credit cards, etc., because these loans are based on paying a loan off over a longer period of time. By comparison, an installment loan uses an annualized APR to allow for better comparisons of the loan.
The APR for a loan uses a relatively complex formula but is typically calculated as:
Rate for a payment period times X Number of payment periods in a year
However, the exact legal definition of “effective APR”, or EAR in short, can vary greatly in each jurisdiction, depending on fees, such as participation fees, loan origination fees, monthly service charges or late fees.
In order to simplify this process, we have put together a calculator that will help you determine the true cost of any loan. After getting the APR from the loan companies that will contact you, use this tool to calculate and determine the true cost of the loan and base your decision on this important information. Your APR will also show you how much you will be required to pay every month.