Working Out The Total Cost Of A Loan

By:Peter Kenny

When you are looking for a loan, you need to compare loans by working out the total cost of repaying the loan. Although many web sites allow you to compare the APR costs, working out the real total cost of a loan is a little more complicated. However, it is important that you do this so that you can budget accurately and also so that you can find the best deal for your needs.

Estimating the total cost

The quickest and easiest way to estimate the total cost is to multiply the total amount borrowed by the APR, and then multiply this by the number of years. For example, if you borrow Ł10,000 and the APR is 10% for 5 years, then 10000 times 0.10 times 5 equals Ł5000. This is the interest you will pay, so add this to the total amount borrowed and then you know to borrow Ł10,000 for 5 years at 10% costs you Ł15,000 in total. Of course, this is only an estimate and will be higher than the actual amount as interest payments are reduced as you pay off the amount.

Other costs

There are obviously other costs to add to this total amount, such as loan processing fees, payment protection insurance and any other fees you need to buy to set up the loan. Add these to the total cost mentioned before and you have the total that you need to pay back over the loan term.

TAR

If you are discussing the total cost of the loan with your lender, then ask them to give you the TAR. This stands for Total Amount Repayable, and will let you know the total you have to pay back during the loan term. The difference between the amount borrowed and the TAR will tell you how much the loan is costing. A smaller difference between these two numbers means a better deal for you.

APR

As well as knowing the TAR, you should work out how much you need to repay each month. To do this, divide the TAR by the total loan term in months. For example, if you were paying back Ł14,400 over 12 years, then you will pay back about Ł100 a month (14,400 divided by 144 months). Of course, this is also an estimate as the TAR amount you have calculated is an estimate. To get the exact amount, ask the lender.

Adding penalty costs

When working out the total cost of a loan, you should budget into the equation some penalty fees. Although you might never pay any of these fees, to allow for a few late payments will help you to be prepared in case. It may also help you to decide between two similar loans, depending on the amount they charge for penalties and late fees.

If you are unsure, seek advice

If you are looking for a loan and are still unsure how much you will need to pay back over the whole term, then consult an independent financial advisor, who can help you work out how much you are paying for each loan, and which is the best deal.

Digg del.icio.us Blink Stumble Spurl Reddit Netscape Furl

Article keywords: Personal loans, uk, secured, loans, debt, consolidation, compare, apr

Article Source: http://www.articles2k.com

Peter Kenny is a writer for thriftyscot.co.uk, please visit us at Personal Loans and Loans

Top Finance Articles
1). Locate And Find Debtors With A Credit Collection Agency By : Stu Pearson It can be a frustrating experience trying to collect a debt from a customer who just seems unwilling to pay. Letters sent to their address go ignored, and phone calls are answered with empty promises of payment. While this is certainly a bad scenario, what if a customer who owes you money just disappears? It is possible to locate and find debtors with a credit collection agency, and in this article we’ll explain to you the methods behind their tracking.
2). Top Ten Tips for Getting Out of Debt By : Russ Dalbey Top Ten Tips for Getting Out of Debt
3). Benefits of Getting a High School Scholarship By : Sandra Stammberger Education is the best thing you could ever have in this world. Learning different things in this world will give you a big pleasure.
4). Who Is Responsible For Closing Costs By : Raynor Buying or selling a home is a euphoric experience for both of the parties involved. This euphoria can cool when you learn which party is responsible for the closing costs. Who Is Responsible For Closing Costs When looking to buy or sell a home, every person eventually arrives at the question of funding closing costs on the transaction. To put it simply, both buyers and sellers typically are responsible for some of the closing costs.
5). Family Finance By : Joseph Kenny One of the hardest things that young couples report during their first year of marriage is getting to grips with joint finances. While most are willing to share what they have with their partner, they are not sure on the best way to bring this sharing into effect so that they can share with their new partner, but at the same time maintain financial security and a degree of independence.
6). Preparing Your Finances For A Bird Flu Pandemic By : Pandemic Zone If you have been paying attention to the news lately you may of heard of the threat of bird flu and a world pandemic. What would this mean and how would it affect your financial holdings. The World Bank, which has estimated that a bird flu pandemic lasting a year could, cost the global economy up to $800 billion dollars. The economic toll on the world economy will be catastrophic.
7). Loans for Self Employed : Supporting the idea of being independent By : Christian Phelps Loans for Self Employed : Supporting the idea of being independent
8). High Gas Prices and Ways to Save By : essmeier With Memorial Day around the corner, the great American travel season is here. During the summer, most Americans take at least one extended vacation, and four fifths take that trip by automobile. Unfortunately, this year, the price of gas is at record highs, and no one likes to spend their vacation money on gasoline. While there is little to be done about the price of gas itself, there are some things the average vacationer can do to help ease the costs of auto travel.
9). Five Rules to Consider Before Filing Banckruptcy By : Nathan Dawson Five different rules to consider when trying to decide if filing bankruptcy is the right move. If bankruptcy is the right move, which chapter should you file?
10). Trading Psychology – Adopt the Right Mindset for BIG Profits! By : Stephen Todd The fact is the majority of traders lose because they cannot control their emotions. Trading psychology is one of the keys to investment success.

New Finance Articles
1). How To Earn Money Online In Five Easy Steps By : John Morris Living in Los Angeles, Greg realized that there are a lot of people who work from home rather than the office. One reason is that many of these executives are writers and producers of films and television shows...
2). You Can Stick to Your Budget By : Jonathon Hardcastle Recent studies have shown that Americans are spending less money on necessities than ever before. Yet, more Americans are also in debt. The unspoken fact that makes both those statements true is that Americans are spending more and more money on luxury items.
3). Technical Analysis Of Stock Data By : John Morris To perform a technical analysis is simply examining stock chart data in order to make predictions about the future of that stock. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in...
4). Getting The Most Money Out Of Selling Your House By : John Morris It is easier said than done to make a profit in the real estate market nowadays. Those that manage to consistently turn a profit on real estate investments have been working in that field for years and are using proven strategies in order to minimize risk...
5). How To Solve Banking Disputes By : Peter Kenny Solving a dispute with your bank is easier than you think
6). Why Would You Want To Use Tax Deduction Software? By : Michael Williams With all the options in tax deduction software it is hard to distinguish which ones are offering the best deals. A lot software is web-based, but there are still a few that can be loaded onto your personal computer. Find out more...
7). Biggest Budget Blunders By : Nathan Dawson Does your budget never seem to balance the way it should? Are you constantly digging into the savings to make ends meet?
8). Tips For Safe And Secure Banking By : Peter Kenny The key to safe and secure banking is to reduce the risk of your account details being exposed
9). Hope for Students with Poor Credit By : Jeremy Thompson Even if you have poor credit there is still hope when it comes time to get a student loan. Read this article for more information.
10). How Can I Be Approved For A Low Rate Credit Card? By : Mike Singh When applying for a credit card you may come upon what is called a low rate credit card, what is this exactly and how can it help you? First of all you should know that a low rate credit card is usually an excellent way to go when applying for a credit card. Find out more...