Hiring personal loans without knowing how to choose the right term can give us problems, such as fees or interest that is too high. Not only interest or commissions are a determining factor in the cost of a loan; the extension of the deadlines is another decisive element that influences the total quota. Personal loans with short terms tend to leave a monthly fee too high when you have to repay the loan in too short a time. And choosing a too long term will make the monthly payment lower, but they entail a higher total interest expense. Because over time we are reimbursing the credit will generate more interest. The comfort of paying less for longer hides a considerable loss of money in interest , since they can easily exceed € 1,000 in loans of more than € 10,000.
Find the balance between terms in personal loans
Choosing a loan with a very short term entails high monthly fees, and choosing one with a too long term greater interest. But in spite of this, it is not necessary to renounce the usefulness and the possibilities offered by personal loans. In addition, we are talking about one of the most useful credits for financing large projects; cars, reforms, studies … Simply, it is enough to find the most balanced alternative in the relation fee-interest-term. Next, we show you a table of two personal loans with similar conditions, but with different terms. The costs of personal loans in the short (1 year) and long term (5 years) in a loan of € 7,000 are exemplified:
|Examples||Quantity||Cost||Term||Monthly fee||Total interests||Total to pay|
|Loan A||€ 7,000||5.95%||12 months||€ 602||€ 227||€ 7.227|
|Loan B||€ 7,000||5.95%||60 months||€ 135||€ 1,110||€ 8,110|
The short-term loan (A) carries almost € 1,000 less than the total cost. On the other hand, the monthly installment of long-term credit (B) is almost five times less than that of loan A. Neither of the two options above is the ideal one ; because although with Loan A we pay less, it is not usually normal to be able to pay such a high fee. For its part, the cost of Loan B ends up shooting even though its monthly payment is lower.
Medium term results in personal loansIn the following example you can see the average term that is achieved by a more accessible quota, both in the total cost and in the monthly fee. From looking for the balance between long and short terms in personal loans of € 7,000 for 2 years:
|Example||Quantity||Cost||Term||Monthly fee||Total interests||Total to pay|
|Loan C||€ 7,000||5.95%||24 months||€ 310||€ 442||€ 7,442|
In this example, the monthly payment and the total to pay get balance, making the total cost does not trigger without the monthly payment is too high. Hiring a personal loan with an intermediate term there is no risk of assuming a too expensive monthly fee (The monthly installment of Loan A is almost double that of Loan C).
Even so, the big point in favor of Loan C (intermediate term) is the saving over the total cost compared to Loan B (long term). The total savings of Loan C in Loan B is € 667 in a loan of € 7,000. Long-term personal loans are expensive despite your comfort .
Despite mastering the terms of personal loans, it is still interesting to know as much as possible about the management of a project of such magnitude. Therefore, from HelpMyCash we provide you with the following free guide with all the necessary questions when hiring this loan.
It is fascinating how we can save hundreds of euros by choosing the right alternative in personal loans. We must ensure that the deadline does not fall short, or go long.