Find the cheapest personal loan
Finding the most interesting and therefore the cheapest personal loan can prove to be a difficult exercise when you do not fully understand the different aspects of the loan in question.
A personal loan is a loan ranging from 200 to 75,000 € and the repayment period must be between 3 months to 7 years. This type of loan is characterized by the freedom it gives the beneficiary concerning the use of the funds advanced, as opposed to the assigned credit which depends on the purchase of a predefined good before the loan is set up.
In order to choose your personal loan, also called credit without proof , several criteria will have to be taken into account. Playing the competition will be your best asset to find the best loan.
How to know the cost of a personal loan?
The cost of the loan is equivalent to the amount of interest ultimately repaid. So for example, for a loan of $ 10,000, if you have to repay a total amount of $ 10,350, the interest will be $ 350, which is equivalent to the cost of the loan in question.
The interests are defined by the interest rates, and more precisely by the APR (Annual Global Effective Rate), which makes it one of the most important criteria to take into account to know the price of a loan. . The APR includes the interest rate but also the administrative costs and any commission. This does not include the notary fees. The APR concerns consumer loans, to be differentiated from the TEG which concerns mortgage loans.
The APR is defined by the bank or the financial institution with which you take out the loan. However, it must meet market criteria. Namely, the Bank of United States defines a rate of usury, limit that no APR can exceed.
As of January 1, 2017, the applicable wear rates are as follows:
- For a loan of less than $ 3,000: 19.6%
- For a loan between $ 3,000 and $ 6,000: 13.25%
- For a loan greater than $ 6,000: 6.65%
These wear rates are slightly higher compared to 2016, although current interest rates are still particularly low compared to the historical market.
Since APRs can vary between financial institutions, they are a factor that should not be overlooked when looking for the cheapest personal loan. It is also important to note that the higher the amount borrowed, the more interesting the APR will be.
Online personal loan comparators are generally very helpful in comparing different offers and finding the cheapest loan.
The repayment term: an essential aspect of the cost of a loan
The longer the repayment term, the lower the monthly payments. Thus, one would tend to believe that the spreading of the repayment influences the fall in interest. However, it is indeed the opposite which occurs: The interests are calculated according to the capital remaining to be repaid. This therefore implies that the longer the repayment term, the longer there is capital remaining to be repaid and the higher the interest.
Below is an example of a loan with 3 different repayment terms:
Amount of monthly payments
Total to be reimbursed
Interest / Cost of the loan
12 months (1 year)
36 months (3 years)
60 months (5 years)
In choosing the cheapest personal loan, you will therefore be advised to choose the highest achievable monthly payments possible. The idea being to always be able to pay the monthly payments without spreading the repayment over too long a period, and therefore choosing the shortest realistic timeframe.
The repayment period, and the amount of monthly payments that goes with it, must also be selected with caution and consideration since:
- Failure to repay a monthly payment generates late penalties which can be high.
- An early repayment of the loan, contrary to what one might think, will generate additional costs. Indeed, since the cost of the loan is closely linked to the repayment period, it is not a happy event for the financial institution to see this reduced period.
Other important aspects:
Application fees: This is an insignificant variable in the cost of a loan, but it does exist all the same. They are generally 1% of the loan amount, except for loans requested from an online bank which do not contain any.
Insurance: Although not compulsory by law, insurance is frequently required by financial institutions in the preparation of a file, sometimes more than others depending on personal situations. The costs associated with insurance will have a significant influence on the APR, which will be revised upwards. It is therefore important to know if the APR of an offer already (or not yet) includes the amount of insurance costs. Good to know: If he wishes, the beneficiary of the loan is entitled to request his insurance from an organization other than the one he is requesting for the loan.
Variable rates and fixed rates: A variable rate represents an additional cost risk linked to the evolution of the market and not foreseeable. That is why you will be recommended to prefer a fixed rate loan.