Whenever a borrower seeks a new loan, from a credit card to a mortgage, he must look at the loan's APR (annual percentage rate) to determine the overall cost of the loan. Comparing APR's is a simple way to judge between two loans and determine which one is cheaper. In addition, the borrower should look at the terms of the loan to see which one better meets his needs.
Instructions
1. Request a Truth in Lending Statement from both lenders. A Truth in Lending Statement lists the APR, loan amount, interest expense, and terms of the loan. The law requires lenders to give you this statement and to calculate the APR in the same manner. The APR is a numerical representation of the entire cost of the loan for a year, including fees and monthly interest rate.
2. Note which loan has the smaller percentage rate for its APR. This is the cheaper loan. If the other loan has a lower monthly interest rate, you are paying higher fees to get this rate, and that does not make it a better option.
3. Look through the Truth in Lending statement to see the monthly payment on the loan and the term (length of the loan). Is the monthly payment in line with what you can pay? The longer the term, the lower the monthly payment, but also the more interest you'll pay over the life of the loan.
4. Choose the loan with the lowest overall fees that best matches your payment needs. Sometimes it is worth paying more for a lower payment that does not stretch your budget.
Tags: monthly payment, Truth Lending, cost loan, interest rate, Lending Statement