Thread: Further on the subject of interest

It's the interest rate you pay with any fees factored in. 5% looks better than 7%, but if they don't mention the upfront fees & charges it's hard to tell, 7% might be the better deal.

It'slike phone & internet plan prices where they give you the total yearly cost (which includes setup, handset, etc) and not just the monthly charge.

I regard this as misleading!!!

Originally Posted by artme

I regard this as misleading!!!

I think it was brought in by the Government (?) to stop misleading schemes. Eg:

Bank A offers an average interest rate of x%, with a $4,000 setup fee.
Bank B offers a higher interest rate of y%, with no setup fee.

If they hid the fees, Bank A looks the cheapest, whereas over the life of the loan Bank B may be cheaper as it is without the massive fee.

So like Dropcat says, it 'should' even out the field. The comparison rate takes into account all fees - sort of bundles the fees up into the interest rate to arrive at the comparison rate.

I feel sorta educated now that I'm reading the below book as a 'mature age' Uni student (not that it makes me knowledgeable on this by any means!). Finance: talk about ZZZZZzzzzzzzz..... but I'm sure financy types would say that about my IT types. Anyway, enough of the Woodwork Forum, back to study

Originally Posted by artme

I regard this as misleading!!!

Not mentioning the fees like they use is misleading, I wanna Shed explained it better. Say you wanted a $10,000 loan over 10 years. Offer 1 is 4% & $1,000 in fees, offer 2 is a higher 6%. The lower interest is better, right? Nope, they're both the same. The 4% would look especially attractive if the $1,000 in fees was in small print or glossed over. In other words, the effective interest rate for both offers is 6%, so that's what is used when comparing the offers. Banks etc, are good at hiding the real cost of a loan. Look at mortgages, the percentage rate gets bandied about a lot, but what about the monthly admin fee they charge? Say it's only $10, that's still about $2,500 extra you pay over the life of a loan. It really should say "If you take a loan this $10,000 car will cost you $13,300". The rental places that hire a TV for 'only $3 a day!' irk me no end. $1,100 (or less!) buys a nice TV these days, but if you want it now and are a bit math-challenged...