Thursday, November 16, 2006

How much does this cost

I have just been adding some calculations and there was one that might be useful to anyone getting a loan. Forget APR its too easy to hide costs instead.

TAR (Total Amount Repayable) = Monthly Repayment * Term(in months)
Cost of Credit = TAR - Amount Borrowed

Example

Principle loan amount£5000
Term 5 years (60 months)
APR of 7.5 (this takes into account £150 fee).
Monthly repayment is £99.56
TAR = 99.56 x 60
TAR = £5973.60
Cost of Credit = 5973.60 - 5000

So you can see the cost for borrowing £5000 is £973.69. Lenders are obliged by law to print cost of credit onto loan agreement but some of them do funny things with fees and ppp so I would run a quick calculation of your own. This gives you a realistic figure by which to compare loans with.
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