As many know, when it comes to personal loans, if you borrow a larger amount you will pay less interest in a proportional sense. Of course, other factors play a part, in particular, loan length, and other fee’s.
However, what many don’t know is just how much difference the loan amount can make to its overall cost.
Defaqto, the UK based financial research company has recently discovered that taking out a slightly larger personal loan could considerably lower its overall cost.
Adding just £1 onto a loan from one particular lender for instance, could result in an overall saving of £1,082.40!
This is because of the way in which loan APR rates are structured. Many lenders use a “tier” system for their loans, with more interest being charged on the “lower tier” rates. As the amount borrowed increases, it is pushed into a “higher tier” and a lower amount of interest is charged.
One of the most significant anomalies appears in the example of a personal loan currently offered by a popular UK lender. The APR for borrowing £4,999 over 5 years is 15.9%, however, adding just £1 to this, pushes the loan into the next tier, resulting in an APR of just 7.9%. This sees a saving of £1,082.40.
The moral of the story it appears is that borrowers need to be aware of the significant differences that the size of a personal loan can make to its overall cost.
As with any long term financial purchase, its always best to thoroughly research the market, not only focusing on APR’s but also any extra fee’s that lenders add for the privilege of taking out the
loans.
Liam is a UK based author, currently focusing on loans. Compare over 550 personal loans online today.
