When you want to ask for a loan or personal loan, the monthly payment is not the only thing to consider. You should also keep in mind what the total cost of funding will be. One of the important things is to make the decision if you will return it short or long term. Choosing the repayment term of your loan can significantly reduce the total interest and save you money- why not find out more. In short, the shorter the repayment term, the less you pay in interest. And, on the contrary, the longer the term, the greater the total price of financing.
Make a simulation of your credit
The first thing you must do (before making the decision about the term) is to check how much money you would have to pay monthly and how much the total cost of your loan would be due to its duration.
Most lenders offer an online calculator or simulator on your web pages to simulate your loan. The use of loan simulators is free, simple and intuitive. You can play with the minimum and maximum amount, deadlines, monthly fees, and other parameters to balance the optimal characteristics of your financing. In general, just need to choose the amount of money you need and the monthly payment you want to pay. The tool will do all the calculations instantly and will show you the basic information about your loan.
How does the loan cost vary due to the chosen term?
To demonstrate how the fees and the total cost of the loan will change, we are going to carry out simulations of the Crédito Cofidis project with the online calculator. The basic characteristics of this financial product are the following:
- It is a personal loan for any purpose.
- Amount of the credit to the opening of 4,000 to 15,000 euros.
- Initial return period from 12 to 72 months (monthly installments).
- Minimum interest rate of TIN 5.95% (APR 6.12%).
- Maximum interest rate TIN 19.00% (TAE 20.77%).
The Cofidis simulator allows you to choose the term and the desired amount and display the monthly payment and the total amount to be paid. Imagine you want to apply for a loan of 10,000 EUR:
Simulation 1: the amount of EUR 10,000 to be repaid in 72 months
TIN: 10.95% APR: 11.52%.
Monthly payment : 190,09 EUR
The total amount owed: EUR 13,701.20
The total cost of the loan: 3,701.20 EUR
Simulation 2: the amount of EUR 10,000 to be repaid in 36 months
TIN: 10.95% APR: 11.53%.
Monthly payment: 327.16 EUR
The total amount owed: € 11,792.59
The total cost of the loan: EUR 1,792.59
Simulation 3: the amount of EUR 10,000 to be repaid in 12 months
TIN: 10.95%. APR: 11.55%.
Monthly payment : 883,59 EUR
The total amount owed: EUR 10,618.20
The total cost of the loan: 618.20 EUR
As you can see, both the total financing price and the monthly fee vary a lot due to the return period is chosen. In fact, you can save more than 3,000 euros if you will be able to face the corresponding monthly payment and reimburse your credit in one year. However, it always depends on your financial situation, that is, if it allows you to increase the monthly payment so that it is possible to pay less in total. Since the main advantage of choosing a longer term is that it allows you to return your credit in more comfortable installments that adapt better to your solvency capacity (although you will pay more in total).
To make the right decision, the most important thing is to consider your financial situation and your monthly budget, taking into account all your existing income and expenses. Remember that the fee should not exceed 30% of your income. Assess your debt capacity well will allow you to choose the most appropriate return period, without wasting your money or falling into the default of your credit.