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How to Correctly Compare Personal Loan Interest Rates

Personal Loan Rate

Personal Loan Rate

The goal of every borrower should be to absolutely minimize the interest dollars paid over the life of the loan. This is true for a home loan you plan to pay off over a twenty or thirty year period, and it’s also true for a personal loan you’re planning to pay back by the end of the week.

However, personal loans present a special challenge because with these types of debt you rarely pay just the interest on principle to the lender. You also need to factor in the fees they nearly always charge if you want to really understand the true cost of the loan.

Personal Loan Rate

Consider a $500 loan taken out for a period of one month. Because it’s a short term loan, the lender may say they want you to repay all the principle plus five percent interest at the time the loan is due. That would be your total repayment amount would be $550. Now imagine if they decide they’re going to sneak in a $39 fee (paid up front no less) and add that to your loan amount.

Now instead of paying five percent interest, you’ve nearly doubled to about 9% interest on the loan. If you annualize that you’re looking at nearly 108% interest! Does that seem logical to you? I hope not. So think twice before you take out any kind of personal loan with high interest rates, regardless of how they stack up to their competitors.

Being careful to always make an analysis of the different interest rates available to you is the key to minimizing the interest you pay over the life of your loans.

Personal Loan Rate