When you are comparing interest rates on loans then it is really important that you understand what you are comparing. The interest rate is usually used to describe how much interest you will pay on the money that you borrow. However, loans can often have other charges on top of this interest, such as start-up and admin fees. The AER Is a figure which includes these fees so that you can do a like for like comparison. These are often quoted when you see advertisements for short term loans or even those without a credit check, but when you look at bank loans, you tend not to see it. This means that it is not always easy to compare rates properly.

Therefore, you need to be sure that you are comparing your loans properly. There are some easy ways that you can do this and you might want to pick one that you will feel will work best for you.

  • Ask the lender their AER – if you are a bit confused by all of the rates then asking the lender what their AER is can be easier. They should be able to give you the figure easily. Contacting them can be a good idea anyway as it will give you an idea of how easy it is to get through to them, how quickly they reply and how good their reply is. You will also be able to find out how polite and helpful they are. This could be useful if you do decide to borrow from them and you need to contact them for any reason.
  • Find out how much the repayments will be and how many there are – it can be wise to find out how much you will be expected to repay and how often. For some loan types you will have regular repayments, for some there may just be one repayment and others there may be more flexibility with the repayments. The more repayments there are, the longer you will have the loan and the more expensive it will be. This is because interest will keep being charged for as long as you owe money. If you know how much you have to repay each month and for how long, you will be able to calculate how much you will repay in full.
  • Ask how much you will repay in full – it can be really useful knowing exactly how much you will repay in monetary terms. This will allow you to calculate how much in fees you will be paying. This is a figure that you can use to compare with other lenders. You will also be able to think about whether you feel that this loan cost is justified and if you are prepared to pay it. You can consider what you are using the money for and think about whether you think that it is worth that extra money.
  • Find out the interest rates and fees – it could be that you would rather find out what the fees are and what the interest rate is. Some loans may not have any fees anyway and you may just have to repay the interest.
  • Investigate extra fees – all loans will have extra fees as well. These will be for things like missing a repayment of making a late repayment or perhaps for repaying the loan early. It is good to be aware of these as well because you will then be able to compare lenders that are very similar in other ways and decide between them based on this.

So, as you can see the difference between AER and interest rate is crucial and you need to understand it so that when you are comparing lenders you know exactly what you are comparing. If you want to know how much each will cost you then there are lots of methods that you can use. It is wise to pick the one that you will find the easiest to understand and that works for the type of loan that you are taking out. Most methods described work for loans with regular repayments but if loans have a more flexible repayment scheme such as with an overdraft or credit card, then you will be more limited in how you can compare them. However, as long as you compare them in a similar way, then you will know that you are going to be able to identify which will cost you the most money.

It can also be confusing that interest rates can change and so knowing how much a loan might cost could be tricky to work out if the rate is variable and therefore might change. However, it is best to assume the rate will stay the same, so that you can compare loans. If a rate does go up or down the chances of any loan cost also going up or down is the same so it would be very hard to predict what might happen and which loans might go up or down and which might. Assuming the rate remains constant is therefore the best method that you can use.

If you have decided to get a payday loan then you might be concerned that you want to make sure that you get the best rates that you can. It can be hard to know where to go to find the rates and how to make sure that they really are the best ones.

Comparison websites

Many people use comparison websites for all sorts of things. It can be a good way to compare costs, but it is important to use them wisely. Firstly, you need to make sure that if you are comparing items on costs, that they are being compared like for like. For example, with a payday loan you will usually have to pay interest and fees. If combined together these make the AER which is an equivalent percentage rate. However, if you use the interest rates without the fees incorporated in, then you will not get an equivalent comparison. Therefore, you need to check to see if this is the case with these.

Comparison websites also get commission on leads that they generate through the comparisons that they make. This means that they will often only include lenders that pay them a decent commission. Cheaper lenders may therefore not be there. One way to try to get around this is to look at a number of different sites. Another way is to use this method alongside others.

Advertisements

You may see companies advertising on the television or in newspapers and online. These may be different to the ones that you see on the comparison websites. You could look at their rates and then compare them. Often companies that advertise are more expensive as their advertising has to be paid for, but this may not always be the case. It is therefore worth taking a look at their prices to see how they compare.

Search engines

If you search for payday loan in a search engine you will get all sorts of results. These will enable you to be able to see what lenders there are outside of those on the comparison websites. You will probably find that there are a lot of lenders and you may be rather overwhelmed. However, it is worth looking at some of these as you could find that you will find one that is a better price.

Review websites

If the search engine lists are too daunting then a review website might be an easier choice. You will find that there are various websites that will rank or review lenders. These are not necessarily impartial though. Like the comparison websites, they may get commission on leads or they may even be put there by lenders wanting to try to show that their loan is better than others. It can still be a good place to find out a bit more about which lenders are available though.

Once you have done all of this research you will be able to get an idea of how the payday loan rates compare. You will probably notice that the AER seems scarily high. However, it is much more worthwhile looking at the total amount that you will have to repay in real monetary terms. This will not only be an easier figure to comprehend, it will help you to see how much the loan will actually cost you so that you can decide whether you think that it will offer you good value for money.

Once you have whittled it down to a selection of the cheapest lenders then it is wise to do a few last checks. If you take a look at the terms and conditions you will find out what the charges are if you make a late repayment. Although no one likes to think that they will have to pay this, it is a good idea to know how much it is anyway. If any seems much higher than others then you may want to disregard this lender. Knowing this figure will hopefully also motivate you to repay on time as you will know how much it will cost if you do not.

This will be a lot of work to do and can take quite a bit of time. However, if you want to know which has the best rates then this will be the way to do it. You could cut corners by just looking at comparison websites or just comparing the lenders that you have heard of. Although this will save time, it could mean that you will end up paying more than necessary.

It is also wise to think beyond price as well. There may be other things that you should be considering as well, such as the reputation of the lender and how good their customer service is. So if some are very close on their prices then looking at these things could be a way of choosing between them.