Many people do not know what to consider when choosing a loan, so they pay attention to the simplest indicators for them. One of such elements is the installment height – it is a simple element that can be easily assessed. However, is it really reliable?
Is low installment profitable?
It depends in what sense. Of course, the lower installment is less expensive for your monthly budget, but you may find that the total loan costs are higher. Let’s take an example of a PLN 5,000 loan and look at sample costs over different billing periods:
– 12 months with an installment of PLN 500 each
– 24 months with an installment of 270 PLN
– 36 months with an installment of PLN 200 each
In the first case the total amount to be repaid is PLN 6,000, in the second it is PLN 6,480 and in the third it is PLN 7,200. So the difference is huge. Therefore, when choosing a loan, it is worth paying attention not only to the low installments, but also the total cost of the loan.
Very often low installments are associated with higher costs of credit, you pay off with smaller portions, but more.
Is it worth looking only at the total amount to be repaid?
At the same time, you cannot go to the other extreme and completely ignore the installment amount. It is worth noting that you have to pay back the loan regularly, late installments will have a negative impact on your credit history.
This means that the installment you choose cannot be too large, because otherwise you will not be able to pay it back, and this can give you many loans.
What to do in that case?
When choosing a loan offer, just remember not to look only at the installment amount but also at the total repayment amount. Try to find the golden mean – choose the amount of the installment that you are able to cope with, at the same time one that will give you the lowest total amount possible.
In the case of loans for smaller amounts, e.g. PLN 1,000, it is usually best to choose the shortest loan period. For the higher ones, you need to use common sense and look for the golden mean.