What does borrowing money cost?

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Borrowing money, costs money

This may seem like a simple question, but it is not so easy to answer it!

We therefore discuss several types of loans and give you examples of amounts that you can expect approximately.

Good to take in all the information before you decide to actually apply for a loan!

In this article:

Cost and interest types

Borrowing money costs money, you have heard that before. But what costs are actually involved? The most important is of course the interest, but there is more . For example, the interest rate in itself is not decisive, because the term of a loan determines how much interest you will eventually pay on the entire loan.

In addition, you may have to pay any fines if you pay off a debt earlier during the term. There may also be costs involved in taking out a loan, for example if you have to arrange a guarantee.

An important distinction can also be made in types of interest, or at least how it is communicated. Sometimes you see an annual interest, but sometimes people talk about monthly interest. But at the bottom of the line, this may be a different amount that you have to pay, because when you settle interest monthly you will at some point get an "interest on interest" effect. Suppose you pay 6% annual interest, but you settle this monthly in your loan, then you effectively pay 6.17%

Because this is quite unclear, the Dutch Government has determined that loan providers must always communicate what the effective interest is, so the 6.17% from the example above. In this they even have to include the costs, possibly interim costs. This is officially called APR (Annual Cost Percentage). In the examples below, we always calculate with the annual effective interest.

Calculate monthly amount / monthly repayment

The above matters all do something with the total costs that you have to pay for a loan, but converting this back to the monthly amounts that you have to pay is also not an easy calculation.

Often this is a fixed amount, but with interim changes in interest or in the meantime repayments or additional withdrawals suddenly everything changes again. We do not include this in the examples below because it cannot be predicted.

Mini loan

This is also called a payday loan, urgent credit or a small loan. In all cases, this involves a relatively small amount of $ 100 to $ 1,500. Because of this modest number, the providers of these loans are often more flexible .

For example, at the largest provider worldwide Money Now (also in the Netherlands) you do not have to undergo a BKR test , no documents such as a payslip and you have the money in your account within 24 hours .

The interest on these types of products is high, namely 13.99% (the legal maximum loan interest), the term is limited to a maximum of 62 days or 2 months. It is therefore mainly intended to bridge a short period, until you receive a bonus or your holiday pay, for example. Because you repay quickly, the effective interest costs are limited in absolute terms.

Incidentally, additional costs may arise if you use an external guarantor, because you do not have a personal guarantor. See below some examples of the cost of the interest. With a term of 62 days, you pay back in 2 installments including the interest: half after 31 days, the other half afterwards.

Pay attention! The examples of interest charges below do not include a possible external guarantor. This is therefore a mini loan without a guarantee .

example costs mini loan

Personal loan

With this type of loan you get a fixed term, fixed interest, fixed monthly amount and the loan amount is paid out in one go at the start of the term. So you know exactly where you stand. The amount of this type of credit is often between $ 2,500 and $ 75,000 with a term of several years.

But calculating exactly what you pay per month and what you have lost in total is still quite a formula. You may make extra repayments in the meantime. Therefore, below are some examples without additional repayments. In any case, the rule is that lower interest rates and shorter maturities are normally in your favor.

But a shorter term does mean a higher monthly amount because you pay off faster. That is why you see with many providers that the interest rate decreases with a longer duration, to meet you.

This is also reflected in the examples below, where we express the terms in months and the interest is always 6.9% on an annual basis (APR). In reality, the interest is often lower with a higher loan amount or a longer term,

examples of personal loan costs

So when comparing providers and loans, you should always look at the term and interest, and preferably at the total price . Below you can see the best loan interest rates live at the moment. Click through to the provider for more information / to take out, or on 'all loan rates' for a more extensive comparison.

Revolving credit

This is an alternative type of borrowing on the personal loan for comparable amounts. It is a lot more difficult to determine exactly what you pay in interest and total costs. Therefore, use the above loan overview with the latest interest rates. If you click on 'all loan interest' you can click through to compare specific revolving loans.

Why is it more difficult to calculate costs? Firstly, because the interest is not fixed but variable , so it can rise or fall during the term. Second, you can make interim repayments and withdraw extra up to the original limit. And thus, thirdly, a revolving credit does not have a predetermined term because you can always take out extra, so that you are repaying longer.

That is why the lending party always determines a fixed amount that you use to make monthly payments. This number is a percentage of the maximum loan amount. In principle, this is 1% to 2%, so if you borrow just like in the example above, you pay $ 100 to $ 200 in repayment as a monthly amount, excluding the loan interest.

But you only pay interest if you actually withdraw money, because you do not have to immediately withdraw all the money when taking out, which is the advantage of this way of borrowing money.