Comparison Methods
Total Cost vs Monthly Payment
Many borrowers focus on monthly affordability, but the total cost of credit is equally important. A lower monthly payment over a longer term often means higher total cost due to more interest accrual. Calculate the total amount repayable for each option to understand the true cost, not just the immediate cash flow impact.
Using APR for Comparison
APR provides a standardised comparison metric across products with different interest rates and fee structures. When comparing similar products (e.g., two personal loans), the lower APR generally indicates lower cost. However, ensure you are comparing like-for-like in terms of loan amount and term, as these affect APR calculations.
Comparing Different Product Types
Comparing across product types (e.g., credit card vs personal loan) requires looking beyond APR. Consider your intended usage: revolving credit suits ongoing needs but carries higher rates; instalment loans suit one-time purchases with predictable repayment. The right product depends on your specific circumstances and repayment capacity.
Hidden Costs to Identify
Look beyond headline rates for: arrangement fees, early repayment penalties, late payment charges, annual fees, and insurance or add-on products. Some lenders structure products with low rates but high fees. Request a full breakdown of all costs before committing, and factor these into your total cost calculation.