Top

Comparing Loans the Right Way

What is the first thing borrowers look at when looking for an affordable loan? If you think it is APR, you are being confused by what the government and banks have been telling you. Since 1968, the government has required lenders to release the annual percentage rates to borrowers as a courtesy through the Truth in Lending Act, but it was not supossed to be used as a comparison factor between loans. APR is not the cost of the money you are attempting to borrow! The annual percentage rate is simply the interest rate plus any other tacked on fees, like broker fees or closing costs. So, when comparing loans, compare interest rates along with the period of time that the loan is being extended to you. Understand that APR plays no role in this, it is not effective in comparing loans of different amounts with different lengths of time. The cost of the actual money is not the annual percentage rate, but it is the length of time and interest rate. Although low annual percentage rates are perceived as more attractive, there is usually a catch, such as a much longer period time. The rates charged for short term loans may seem unexpected and unreasonably high, but it is actually less money in the long run because there is less time for the money to gain interest. This means that less money out of your pocket! The rates charged for our short term, easy to pay off payments, are much lower than those you would pay for any SBA loans, which are also trickier to obtain. So next time you are comparing loans, focus on the interest rate and the length of the term.