Bank loans: avoid added costsOn November 18, 2019 by Ana Funchess
The flexibility of repayment is one of the hooks that financial institutions use to attract loan applicants and outperform their competitors. Many banks offer the possibility of returning a loan in low-cost installments, paying absolutely nothing for a time or financing the cost of commissions, among other advantages. The objective? Allow repayment of borrowed money more conveniently. However, everything that glitters is not gold, since in the case of loans, comfort can be very expensive.
From the MoneyLink loan comparator they warn that reducing the amount of the installments to return to credit comfortably always means having to pay more. Normally, entities offer three methods to reduce the amount of monthly payments: extend the repayment term, request a period of lack and finance the cost of commissions (if any). We’ll show you in detail!
Repayment term: when paying less is paying more
A longer repayment term can significantly reduce the amount of a loan’s installments, but in the long run it makes it more expensive, since interest accrues for a longer period. For example, if a loan of $ 10,000 at 10% APR is amortized over seven years, the monthly payment would be 166.01 dollars and a total of $ 13,945.06 would have to be repaid. On the other hand, if that same credit is returned in five years, the amount of the installments would be higher (212.47 dollars), but the amount of money that would have been reimbursed to the bank will be significantly lower: 12,748.52 dollars.
Lack, an option as useful as it is expensive
Many entities offer the possibility of not paying all (total lack) or a fraction (partial lack) of the amount of loan installments during a certain time. This option is especially useful for those people who know that they will not have enough income to be able to pay the monthly payments for a few months or years, but asking for a deficiency will always make the price of a loan more expensive.
Imagine a loan of $ 10,000 at 10% APR with a repayment term of five years and a two-year grace period. How much would you have to pay more?
- If a partial lack is requested, for a period of two years a fee of $ 83.33 would have been paid, but after a period of lack, a monthly payment would rise to $ 322.67 and in total 13,616 would have to be reimbursed, $ 11 to the entity.
- On the other hand, if a total deficiency were requested, not even one dollar would have been paid for two years, but after that time a monthly payment of $ 393.79 would have been paid for a total of $ 14,176.27.
Commissions, better to pay them at once than to finance them
Other banks offer the dubious advantage of financing the cost of your opening or study commission so you don’t have to pay it at once. Logically, if the amount of the commission joins the loan amount, more interest will accrue, since they will be applied over a larger amount. Therefore, financing the commission will always be more expensive than paying it at once in the first installment.