Borrowing Money

Comparing interest rates

When comparing loans, one of the biggest factors that you should consider is the cost of the loan and, by and large, this is reflected in the APR (Annual Percentage Rate). This is the percentage rate as calculated over a yearly time period (in most cases including additional fees), and gives you a benchmark to compare different loans. Many loan providers will use whatever reference to their interest charges that paints them in a good light. For example, a lender may claim that they only charge 3% per month, but in actual fact their APR will be at least 36% (more if they have setup charges and other administrative fees), so you can see that 3% sounds much better than 36%. Looking at the APR provides you with the knowledge of the overall cost of the loan.

When looking at a loan agreement, you may have to dig a little deeper to see what the APR is as it will probably be buried in the small print, but this is the figure that will give you the greatest comparison variable between different lenders.

Know the terms

Most people when applying for a loan think that the bank is doing them a favour and that they should just accept whatever terms are conditional to the loan. If you think like that when taking out a loan chances are you are going to be paying way too much over the course of the loan. In most cases it’s a buyers (borrowers) market, so you should always shop around for the best deal, and arm yourself with the knowledge that you need to know to understand if you’re getting a good deal or not. A major factor in knowing if you’re getting a good deal is to understand the jargon of ‘money-speak’, so that you can talk as an equal with your lender. To help you, we have compiled a list of the more common terms you’re likely to come across when applying for a loan. Take some time to familiarise yourself with the jargon but also don’t be afraid to ask your lender to clarify something if he/she says something that you don’t understand.