Have you finally decided to change the kitchen, or have you made the big decision to go on a trip around the world? Do you have to buy a new car or pay your first-born university master’s degree?
For these various needs, personal loans exist, which allow you to plan your expenses and extend them over time. But now you are faced with the great unknown: how can I assess which is the best loan compared to my needs? And which is the cheapest on the market?
Online quotes and branch quotes
The most classic method to obtain a simulation of the financing that is right for you consists in going directly to the branches of banks and financial institutions; the consultants will carry out an in-depth interview, during which they will bring out your needs and ask you for details on your income and your spending capacities.
They will then simulate the financing for you, to allow you to understand which installment you could take on.
A simple alternative, which you can try directly from the comfort of your sofa at home, is to use an online budget: you can find one on the websites of the individual banks and financial institutions, or use specialized sites, which will allow you to obtain different comparable simulations.
Normally you will be asked for some essential data:
- The amount you wish is paid to you
- The term of the loan you are thinking about
- The purpose of the financing
You may also be asked for additional information, useful to make a first check on your ability to support the financing, such as:
- What job do you do (permanent employee, business owner,…)
- What is your monthly income
- What other financial commitments do you already support and for what amount
Some advice on how to perform a loan simulation
Take carefully into consideration the amount you really need, taking into account that larger amounts obviously involve paying more interest in the total life of the loan.
Also consider the duration carefully: normally longer loans are more expensive, but they have the advantage of being more easily “bearable” than your family budget, because they correspond to lower installments.
Our advice is to carry out more simulations in any case, slightly modulating the duration or the amount, to find an installment that suits your needs.
Always consider that the total amount of financing you pay should not be more than 30% of your disposable income: this means that on the sum of your family’s wages and other income, remove any further continuous expenses (such as the payment of a rent), your loan shouldn’t weigh more than a third or so.
Some simulations of the best loans you can do below, the loan quote is in fact totally free :
How to compare two or more loan quotes in 2019?
Once you have obtained your estimates and verified that the amount of the installment is suitable, you must compare them to verify their convenience. You will find different economic conditions, let’s see together what they indicate and what can be most useful to you.
- TAN (Nominal Annual Rate) : it is the interest rate of the loan and is normally the component that weighs most on the overall cost of the operation. Many consider it essentially the “price” of the loan, but there is a more useful voice to evaluate how much it will really cost you.
- Preliminary costs or initial costs : they are a commission that the bank requires to start the practice and to evaluate it
- Installment collection costs : it is an additional commission that many banks and financial companies ask for the payment of each single installment.
- APR (Annual Global Effective Rate), also called ISC (Synthetic Cost Index) : it is the actual mortgage price. Summarizes, in the form of a rate, all the cost items that weigh on your loan; for this reason it is always equal to or higher than the TAN and provides a much more useful indication to be able to compare two or more proposals.
The product with the lowest APR is the most convenient of all : by summing up both the interest rate and the other expense items, it allows you a perfect and quick comparison, without having to analyze the individual components.
Finally, you can find other interesting information on loan estimates, such as any early repayment penalties (i.e. commissions that you may have to pay if you decide to close the loan before it expires, paying all the capital that you still have to repay) or the total cost of credit : this last item is the sum of all costs and all expenses to be borne by you.
It includes the sum of all the interest that you are going to pay and all the other expenses provided, giving you a very precise idea of your overall outlay.
Have you finally decided to change the kitchen, or have you made the big decision to go on a trip around the world? Do you have to buy a new car or pay your first-born university master’s degree? For these various needs there are personal loans, which allow you to plan your expenses and extend them over time. But now you are faced with the great unknown: how can I assess which is the best loan compared to my needs? And which is the cheapest on the market?