A loan is a transaction between a Borrower (a person or company receiving the money) and a Lender (a person or company giving the money). The principal amount is the actual amount of money given to the borrower. Interest is then added onto the principal amount and is a percentage charged per annum (per year). The interest rates vary across the different categories (Personal loan, Pay Day loan, and Student loan) and across the different banks or private financial providers. Fincheck organises all this information for you, read more on Fincheck here.
The longer the loan term is (how long it takes to repay the loan), the less your monthly instalments will be, but, the greater the end amount is that you will repay. This is because interest gets added onto your outstanding amount over a longer period of time. The longer you keep the loan, the more interest you will pay, resulting in a greater end amount. If you choose to pay off the loan quickly, your monthly instalments will be greater, but the end amount you pay for the loan might be less because the interest charged has not built up so much. There will always be interest added to any loan amount you choose, so please understand that above explanation talks about lesser and greater amounts of interest. It doesn't mean paying back a total lesser amount than you borrowed if you pay it back quickly. The amount will still be added to your initial loan amount, so you will always pay more back when you take out a loan amount - whether you pay back in a short amount of time (usually less total interest) or longer amount of time (usually greater total interest).
Did you know?
- Most people will need to borrow money at some point in their lives.
- It is important to understand the different loan variations available and what rates each provider charges during your loan term.
- If the wrong provider is chosen, you could end up paying huge amounts more than necessary. This is due to interest rates, initiation fees, service fees and other costs.
- If you are unable to pay back your loan on time or the full amount payable, it will affect your credit score and ability to borrow money in the future.
- It is important to shop around and find out which lender will provide you with the cheapest interest rates and fees. Fincheck has an automatic system that works through all the relevant lender information to provide you with your best loan options. We do the research for you.