How to calculate the cost of a consumer credit? What is the 100% reliable indicator to rely on? We will see that the credit duration and the APR rate make it possible to precisely define the cost of a loan. Everything you need to know to understand how to calculate the cost of a consumer loan.

Cost of consumer credit: term and APR rate

Cost of consumer credit: term and APR rate

The cost of a consumer loan is calculated by taking two main criteria into account:

  • The APR rate
  • The repayment tenure

The APR rate (total effective annual rate) of a loan makes it possible to simply identify the cost of interest, but also of possible administrative costs. The repayment duration defines how long the annual rate will be applied. It is therefore logical that a longer repayment term at equivalent APR rate implies a higher cost of credit.

The rate of a consumer loan differs according to the policy of the lending institution, but also the risk it is about to take. In general, the best rates are associated with the shortest repayment terms (12 to 24 months).

Good to know: the APR rate of a consumer loan does not display the cost of optional insurance.

Should we aim for the best cost of credit at all costs?

Should we aim for the best cost of credit at all costs?

Knowing how to calculate the cost of a consumer loan is good, but getting a loan adapted to your situation is better. The most important thing is not to get the lowest cost of credit, but the lowest rate with the monthly payments adapted to your budget. A difficult-to-repay loan can quickly lead to a more complicated situation. Organizations must check a borrower’s repayment capacity before granting the loan or not.

A request for credit with too large monthly payments to be reimbursed (too short duration) will thus almost always be refused, leading to an additional delay before the realization of his project. Performing a credit simulation online with an immediate response in principle avoids knocking on the door of all organizations. Connected to the most renowned specialists, our comparator allows for example to obtain a favorable opinion at the best rate.