One of the advantages that entities usually offer when they want to “place” one of their personal loans is the possibility of repaying it in a relatively long period (6, 7 or even 10 years) by paying comfortable installments. Certainly, if the amortization period of a consumer credit is longer, the amount of the installments will be less, but what those entities do not tell us is that in the long run we will pay more money in interest .
How the term affects the price of personal loans
To know the price of personal loans, it is recommended to look at the interest rate and other costs such as commissions or linked products. However, it is often forgotten that the reimbursement period also greatly influences the final price of a personal loan, since the more years it takes to repay it, the more interest will accrue and, therefore, the more expensive it will be , although the amount of monthly fees is lower. Therefore, it is always advisable to find a balance to return our personal loans in the minimum possible time paying a reasonable fee.
Example of the price of a consumer credit for 4 and 6 years
Let’s see how the repayment term affects one of the cheapest personal loans in the market: the Cofidis Project Credit . If we ask € 15,000 to this lender to, for example, buy a car, the interest applied will be 6.86% APR , whatever the reimbursement period chosen. In this case, if we choose a repayment term of 4 years, we will pay 48 monthly payments of € 356.77, while if we return this consumer credit in 6 years, we will pay 72 monthly installments of € 253.23.
At first glance, it may seem that we pay more to pay back in a longer period, because the amount of the fees is lower. However, if we reimburse this personal loan in 6 years, we will end up paying the entity € 18,231.77, while if we repay it in 4 years, we will pay a total of € 17,124.56, which represents a saving of € 1,107.21 in interests As you can see, reimbursing personal loans in a slightly shorter period is an important saving.
Other factors that make personal loans more expensive
Although the term of reimbursement can significantly increase the price of personal loans, we must also pay due attention in the following aspects:
- Interest rate applied : it is the percentage that is applied to the capital to be owed and that establishes the quotas that we will have to pay to the lender entity. In November 2015, the average interest on personal loans was 8.70% APR (according to the Bank of Spain), so if we want to obtain financing at a good price we must find a loan with that interest rate or lower.
- Commissions : are the compensations that some entities charge as remuneration for their services. The most common are the opening, study and early repayment commissions.
- Related products : to access some personal loans we will have to contract other products that can make the loan more expensive, such as insurance or credit cards.
- Payment to third parties : in high-value loans , entities may require signing the contract before a notary as an additional guarantee. In this case, the fees of this professional will be added to the final price of the loan.