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Why is APR not the only factor to compare loans?

Obtaining a loan is not at all simple as it appears. Sometimes, borrowers end up with a disadvantageous loan contract with increased APR and other shortcomings. This happens as a result of not shopping around for the lenders in an appropriate manner. Occasionally, the lenders ensnare the clients too. Prior to understanding this, the client had signed the loan contract. It is advisable that you should always compare mortgage lenders. Earlier than obtaining a loan, particularly a secured loan (it requires your house to be kept as security or collateral), ensure that the loan provider is not asking for irrational APR and other fees. Many people consider that APR is the only factor to compare loans. However, this is not true. APR is an important determinant for comparing loans, but there are other elements, as well.           

APR explained….

APR or annual percentage rate is the effective rate of interest which is payable on a loan. The purpose of APR is to make the comparison of different loan offers and lenders simpler.

Some factors that should be looked into while comparing loans…..

If you are doubtful about the authenticity of a particular lender, you should compare loans and go through the mortgage terms and conditions comprehensively prior to signing any contract. When you are comparing between loans, the key points that you must remember are the following:

APR: Inquire about the correct APR instead of the nominal rate which is provided to you because APR is the rate on which you are supposed to pay your interest.

Prepayment penalties: They are also termed as early redemption charges. The lender would demand this charge in case you pay off the loan ahead of its maturity date. Try to ascertain the amount that the lender may ask for. Normally, it is 2 percent of the overall amount of the loan; however you can negotiate for that.

Monthly payments: Also make a comparison of loans based on monthly payments. Confirm from the lender whether your payment amounts are variable or fixed.

Repayment terms: Repayment terms should also be compared. If the repayment term is extensive or long, then the interest and the monthly payment are low. On the other hand, if it is short, then both interest and monthly payment would be high. Nevertheless, if you go for a shorter repayment term, you are able to become debt free sooner.