What Makes A Loan Good Value?

Summary: Ultimately, when we decide to take out a loan, we want to try to ensure that the loan we agree to represents the best value. Too often, many of us simply look at the APR as the determining factor and people have often been lured into the dangerous mindset of believing that if a lender's APR is the lowest around, then it must offer good value but, sadly, that isn't necessarily the case. The APR rate can initially be a good guide to begin your research but there are many...

Ultimately, when we decide to take out a loan, we want to try to ensure that the loan we agree to represents the best value. Too often, many of us simply look at the APR as the determining factor and people have often been lured into the dangerous mindset of believing that if a lender's APR is the lowest around, then it must offer good value but, sadly, that isn't necessarily the case. The APR rate can initially be a good guide to begin your research but there are many other important factors to also take into equal consideration. What about fluctuations in the Bank of England's interest rate? If you have a loan with a variable APR and interest rates rise, then so, too, will the cost of your loan repayments over another loan which has a fixed rate of interest for the duration of the loan term, even if the latter had a lower APR when you were considering your choices. What about additional or 'hidden' charges? Some loans may look very attractive and represent the best value but have you made sure you haven't overlooked any additional costs you might incur? These can include payment protection insurance, arrangement fees and other charges such as an early resettlement fee. Then there's the APR itself. You might have seen a lender offering a loan with a 'typical' APR rate of 7.9%, for example. Sounds good on paper but do you definitely qualify for that rate? Around a third of all loan applicants with any given choice of lender will not qualify for the typical rate and so may end up paying far more than if they'd opted to take out a loan with a lender with a slightly higher APR but one which they did qualify for. When trying to work out which loan represents the best value, the important thing to consider is to ask yourself all of the above questions and build up an accurate picture of the TOTAL amount you'd have to repay from the start date to the completion date of the loan. Only by tallying up all of these figures from each of the lenders can you truly determine which loan represents the best value.