When committing to a personal loan it is absolutely vital that you make yourself aware of the terms and conditions of the loan, the rate at which you are borrowing and other features of the loan.
Signing up for a loan with a high APR will attribute in paying too much interest than required. The difference in costs between choosing the lowest priced (i.e. lowest rate) personal loan and highest priced is quite substantial – therefore it is always advisable to shop around before you commit.
I did a quick comparison between two loans available in the market today; one with the highest APR and the other with lowest. As you can see in the example, on a 5-year personal loan of PKR 100,000 the difference between the interest you pay on the two loans can be as wide as PKR 52,000.
In Pakistan, bank’s price personal loans in two ways, you can find loans priced either on floating or fixed rate formats. The monthly payments on a floating rate are subject to change every year. This is because the floating rate loans are based on a spread over and above the index rate, referred to as the Karachi Interbank Offered Rate (KIBOR). Since the KIBOR fluctuates, so do your payments on each anniversary of the loan (the change in equal monthly installments only comes into effect at the beginning of the new year). These loans are ideal for an environment where the interest rates are declining. On the other hand fixed rate loans are priced on a permanent rate through the course of the entire tenor of the loan.
Next time you are looking to apply for a personal loan, it would be wise to check all your options thoroughly. Make sure you look at the rate, format the loan is priced on and any other features – don’t just rush in to it. Review the product carefully, it doesn’t take that long anymore.
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