One of the main things when comparing loans is to compare interest rates. It may make a big difference to what the loan will cost in the end. On smaller loans, the interest rate does not usually make such a big difference. But if the interest rate differs a lot, there will of course be a few hundred dollars that differ on the total repayment amount.
When we talk about larger loans such as car loans, private loans or even housing loans, the interest rate differential will be of greater importance. Then even a small difference can have major consequences on the amount to be repaid.
What discounts are there?
When it comes to discounting the loan, there are several tricks to take even before you start negotiating. Many banks automatically offer a discount if you have several services at the bank. This means that only by collecting all your financial services in one place can you get a discount when you apply for a loan. These may be services such as other loans such as mortgages, savings or bank accounts. Most often, pension savings are also included in this.
Other ways to get a discount are through membership in associations. The fact that lenders offer discounts to members of various unions is becoming more and more common. Membership in the union also provides other benefits such as insurance and discounts with other companies.
Examples of discounts you can get
When lenders offer a discount on the loan, it is often the interest rate that is talked about. It may be that you get up to over 1 percentage point cheaper interest rate. But it can also apply to other things. For example, you may be offered a free monthly spa or a set-up fee. You can then also other banks’ benefits such as free annual fee on the debit card.
What does the interest rate mean?
When talking about interest rates, there are often many figures that figure. It is not only the nominal interest rate and the effective interest rate that exists, but also the interest rate and the average interest rate.
The lender’s website or advertising often shows the list rate. It is the highest interest rate they can offer. Which means you can almost always get a lower interest rate than the interest rate. Many times you are automatically offered a lower interest rate based on your credit rating, income and loan ratio. Other things that affect what interest rate you receive are the ones we listed above as discount offers and how good you are at negotiating. Therefore, the interest rate becomes a relatively poor tool to compare since almost no borrower gets the interest rate on his loan.
When you compare lenders, the incision ignition is more helpful. It’s like it sounds average. The average interest rate is based on the interest rates granted for the previous month and thus shows the interest rate received on average. When you compare the average interest rates, you see more clearly which of the lenders generally grant low loans.
Other interest rates
Other interest rates that are often talked about are the nominal interest rates. This is the interest rate you get on your loan. Effective interest rates are something that all banks need to specify in their terms before approving the loan. The effective interest rate is what the interest rate on the loan will be along with other costs and fees. There may be fees such as setup fee or newspaper fee.
6 important questions
When you apply for a loan and are promised a discount, there are some things you need to secure before you sign the loan contract. Even if you think you know what applies, always check these things to avoid unpleasant surprises.
How much discount? – Always make sure how much the total discount will be on. Sometimes you can get several different discounts on each other.
How is the discount divided? – If you receive several different discounts for different things, always check which ones you have received and if someone is only temporary and later disappears.
How long does the discount apply? – Always check how long you receive the discount. Many times the discount is only offered for one year or during the first term on longer loans.
Will there be a reminder? – Many banks send out reminders about when the discount disappears from your loan, but not all. If you do not receive a reminder, you must remember that the discount will disappear.
Will the discount be renewed if you renew the loan? – When the maturity has expired and it is time to renew the loan, the rebate may not be included in the new maturity.
What more discounts can I get? – It may be that you were not able to grant all the discounts on the first loan. Maybe you needed a certain amount in a savings account or moved your retirement savings. Check what additional discounts you can get when you renew the loan and what you need to fulfill to be able to take advantage of additional discounts.