The number of financial services providers has exploded over the last decade. Alongside traditional home banks, online financial services companies are making every effort to strengthen their market position. If you do not check your loan terms carefully, you may end up with a loan that is never repayable.
In a market economy, tough competition is usually in the consumer’s mind as it means increased supply and lower prices. The rise of online financial services companies in the consumer credit and loan markets has also made banks’ loan margins more consumer friendly.
The downside of fierce competition is the proliferation of questionable practices. Unfortunately, there have also been some obscure players in the consumer credit and lending markets whose ethical behavior is questionable.
Do not stare at the minimum cut
Too often when applying for a loan, the cost of the loan is assessed through a minimum installment or monthly installment. A small monthly installment has psychological power that is easy to leverage when marketing a loan offer.
Above you will see a loan offer for a $ 30,000 loan. On the face of it, the terms of the loan seem quite comfortable: no predetermined repayment period and a very small monthly installment on a large loan. The truth is, however, that when paying such a monthly installment, the loan will not be reduced at all.
Whenever a loan offer
Does not have a predetermined repayment period, it is a good idea to check the cost of the loan and find out how much the monthly installment will reduce the actual total debt. If you look closely at the figures in this loan offer, the minimum down payment says “you only pay interest and expenses”. In practice, this means that the interest cost of USD 480 is disguised as a minimum monthly reduction. This is best achieved by converting the loan margin to USD:
$ 30,000 X 0.189 / 12 months = $ 472.5 / month
That is, you pay only $ 472 in interest per month. An additional $ 5 account management fee is added to this pot and the amount starts to be close to $ 480. This means in all its harshness that you pay USD 480 a month in interest costs and that the actual debt of USD 30 000 does not decrease at all. To pay off this loan, you have to pay considerably more than $ 480 per month. If we put a fictitious five-year repayment period on the loan, the monthly repayment on the same terms will increase to $ 767.
Good Finance’s credit counter does not compare obscure loans
In this case, the lender will be happy to keep you uncertain of the actual cost structure of your loan, as they will receive a monthly income of just under $ 500 without any reduction in their actual loan.
Good Finance’s priority is to communicate as clearly and transparently as possible. We want to make applying for a loan as easy as possible, and we always try to bring out the full cost of the loan. Small print loan terms can further complicate housekeeping and for this reason our credit counter does not offer loans that do not meet our quality criteria.