Private loans are, as you probably know, a unsecured loan that you can apply for when you want money for something.
You normally do not need to specify exactly where the money is going to go, but what the lender is interested in is that you should be able to repay the loan not what the money will be used for. If you are going to take a private loan that is fairly large, it is normally required that you have a certain income per year, but there are no direct large sums.
What is important to look at when comparing private loans?
If you have a job, it should probably not be a big problem. One thing that is important to remember about private loans is that they are generally more expensive than, for example, mortgages that have collateral. This is because it is simply a greater risk for the lender to lend money in this way.
The biggest cost of a private loan is the interest that must be paid to the lender in order to borrow the money. Therefore, the interest rate is a very interesting figure when comparing private loans, since a lower interest rate often means saved money. Since interest rates can differ greatly between the different lenders, this is a good indication of which one is the cheapest.
It is precisely the interest rate that a lender charges in order for them to make a profit themselves. They are only allowed to withdraw their profits in the form of interest, fees of various kinds should only cover their actual costs.
Length of loan
A private loan is pretty free when it comes to repayment time. You can often choose to repay the loan in 1 – 15 years. It is a bit different how long the different lenders apply and especially those who focus on a little less private loans where the longest term is often only a few years.
If you borrow money for just one year compared to 10 years or something, you will have to repay everything much faster something that you have to think about. The monthly costs will then be much higher as the amortization portion is larger. However, the interest cost that you will pay in the meantime will be lower.
Think out what payback time you want and then check out what options you have within this range. You may find that some other loan length suits you. The important thing is that you think about this when comparing private loans.
The effective interest rate
A very good figure to find out when comparing private loans is the so-called effective interest rate. This is a word that many people do not really know what it really means, but you can be calm as it is actually a fairly simple concept.
The effective interest rate is the interest rate on a loan eliminated in a year if all costs are taken into account. This means that the ordinary interest rate is only part of the effective interest rate. Thus, all costs related to the loan are included here. Maybe you have a setup fee or aviation fee that comes with the loan.
Since the effective interest rate takes all costs into account, this is the best measure you can use to compare private loans. It is simply that the bank with the lowest effective interest rate will also be the one with whom it is cheapest to apply for a private loan.
Just remember to compare loans with equal terms with the different lenders as the repayment period and other things will affect how high the effective interest rate becomes. After all, it is important to compare private loans properly so as not to miss the cheapest price if you are looking for it.
Since it is difficult to calculate the effective interest rate without having absolutely all the facts, we only present here the figures that the lenders themselves print. In some cases, the lender will print maximum and minimum effective interest rates, while in other cases they will only print an example interest rate, which is often calculated on a USD 100,000 loan for five years.