Guide: How to Work out the Cost of a Credit Loan?

Credit loans, just like many other types of loan, have a number of costs associated with them. Some of these costs are obvious - such as interest, whereas some of them are not so clear - exit fees, etc. In this guide, we are going to take a look at how you might be able to get to the bottom of credit loan pricing - so that you can work out exactly how much one will cost you in the long term, without fear of hidden or surprise fees down the track.

Here, we will start from the very beginning of the loan process - with initial application fees. We will then move on to monthly interest, and finally cover other expenses such as early repayment fees (if you win lotto for example) and so on.

Upfront Costs of Credit Loans

There are various upfront costs which you should be aware of when it comes to credit loans. The first of these is application fees.

• Application Fee: a fee which is paid upon application for a particular finance facility - regardless of whether or not you actually get the finance

 

An application fee is an old-fashioned way of charging you for the efforts and time that an application for credit takes up. Usually these are in the vicinity of $100 to $500 - but the company will usually let you know before you submit the application.

Regular Costs of Credit Loans

Credit loans have a regular, ongoing, monthly cost in the form of interest. The interest rate on the credit loans will determine how much this expense will be. Let's work out the cost of a loan which is $10,000 - at an interest rate of 12.5% (which is a standard credit loan rate).

• $10,000 @ 12.5% per annum = $1,250 per year in interest
• This interest charge will be broken up in to monthly amounts and will either be charged fortnightly or monthly

 

You will be responsible for paying this interest off on time, in association with the required principal repayments of the loan.

Exit and Early Repayment Costs

Other costs which might apply to you for a credit loan could include early repayment fees and exit fees. Because these are highly variable - it is best to discuss the issue of these with the finance company you are looking to deal with.