How can I get the best interest rate?
This is a question that is on every borrower lips and mind. Here is a 3 step approach to ensure you get the best deal:
1. SPEAK TO A BROKER not a bank - Make sure the lending provider you are talking to has access to a range of products from all the lending institutions on the market. You could say this is the main difference between a Bank and a Broker... If you walk in the yellow bank to get a loan and ask for the best interest rate, your will ge tthe best interest rate the yellow bank has to offer; and if the blue bank had a better offer you would miss out... where a broker would give you the best rate from any bank no matter its colour.
Furthermore banks and brokers have acces to the same products - it is very rare the bank will be able to give you a deal the broker does not have access to.
2. CONSIDER BOTH THE ACTUAL RATE AND THE COMPARISON RATE
- Actual rate - this is the rate you will most commonly hear about. It is the one that is printed in big letters on a advertisement or spoken the loudest in a radio or TV commercial. This rate is the effective rate that will be calculated on your current lona balance and that will be used to determine your monthly or fortnightly payment amount
- Comparative rate - this rate has been created to give you a better idea of the true cost of your loan. you see the actual rate above does not take into account monthly or annual fees, line fees, application fees, etc. The comparative is calculated on the loan amount and on the duration of the loan; it includes all ancillary fees; it then calculates the amount of overall interest AND charges you will incur and brings it back to an interest rate.
3. NOT ALL LOANS ARE EQUAL - sometimes you may need more functionality in your loan and in exchange for this you may have to pay a slightly higher interest. IF this functionality is going to, for instance, enable you to pay off your mortgage 10 years early, it might be cheaper in the long run to pay the slightly higher rate and opt for the functionality. Make sure you get the loan that fits your circumstances
