So many banks, so many choices ...
|How to get most loan mileage?|
In Sweden, the lowest interest on an unsecured loan to day is 3.50%. Unsecured loans are offered by many banks which specialize in this type of loan. Examples of such banks are Nordax, Marginalen Bank, Bank Norwegian, Santander, Collector, Spring Finance amd Sevenday Finance. These banks differ in how they calculate individual interest rates on a loan, based on your financial situation payment ability. To find the lowest interest rate you therefore have to apply for a loan with many banks, which can require a lot of effort.
A loan broker removes hassle and lowers cost
The easiest way forward is therefore to apply through a loan broker. The loan broker mediates your application to a number of banks (googling the term "loan broker" will supply numerous suggestions). This will increase your chances of being offered the best loan the market can offer, whether you are on the lookout for certain loan amount, interest or lowest monthly cost. This approach will quickly give you an overview of your possibilities and make it easier to make an informed choice. One example of such a service in Sweden is Låna Penger.
Factor in the fees
So what does the loan cost? When you know the interest rate it is a simple matter to calculate the monthly cost and overall outlay for the loan. You do need to keep in mind that a loan in most cases has a cost associated with establishing the loan (start-up fee) and a monthly invoice fee. The effective interest takes these costs into account, giving you a more objective measure when you compare different offers. (You can use the LoanWise calculator!).
Think of it as a long term credit
For many the monthly outlay including the fees is the determining factor when choosing a loan offer. This is after all the direct impact on our private economy. To achieve the lowest monthly cost, all other factors being equal, choose the loan with the longest tenure (payback time). There is little risk involved. Remember that a loan can be paid back in larger installments any time you choose, and even be consolidated in its entirety. In this way of thinking the loan is a long term credit with a fixed cost, which you can pay back at any time.
Monthly cost of loan: 1%!
Given all of the above, let's do the maths on a loan with a tenure of 12 years (many banks in Sweden offer up to 15 years!):
A loan of 100 000 SEK with a 5% interest will cost you 925 SEK per month. Assuming a typical start-up fee of 500 SEK and an invoice fee of 30 SEK, the effective interest is 5.84%. Paying back the loan in accordance with the standard installment plan (annuity) will cost you 138 005 over the course of 12 years. A rule of thumb is that the monthly cost for a loan in many cases is approximately 1% of the loan amount.Thus a loan of 150 000 SEK will cost about 1 500 SEK/month, whereas a loan of 200 000 SEK will set you back 2 000 SEK/month. Use the LoanWise calculator to get more exact values!
This post is a translation of an article in swedish, published in Ekonomian