How to avoid the most common mistake by borrowers when comparing loan options(blog.stilt.co)
blog.stilt.co
How to avoid the most common mistake by borrowers when comparing loan options
https://blog.stilt.co/the-most-common-mistake-borrowers-make-when-comparing-loan-options-1211be2c15aa
3 comments
I totally agree that IF the loan terms are same, then lowest APR would be the winner.
Unfortunately, most people are not financially savvy and unable to make logical financial choices even if they are well educated with good enough incomes. Most of the financial education content emphasizes comparison based on APR (which is correct) but they miss out the impact of loan term and origination fee especially if someone prepays the loan. That's what the article is trying to explain, if the loan terms are different, then don't just make decisions based on APR thinking you'll prepay and save more money with the lower APR loan. Perhaps, the article could've done a better job at explaining the concept.
Unfortunately, most people are not financially savvy and unable to make logical financial choices even if they are well educated with good enough incomes. Most of the financial education content emphasizes comparison based on APR (which is correct) but they miss out the impact of loan term and origination fee especially if someone prepays the loan. That's what the article is trying to explain, if the loan terms are different, then don't just make decisions based on APR thinking you'll prepay and save more money with the lower APR loan. Perhaps, the article could've done a better job at explaining the concept.
Thanks for that explanation! I didn't think about prepayment when I wrote my comment.
I don't understand why someone who's interested in getting a lower outgo would even conclude just based on the interest rate when the loan terms are different with different lenders. The example given in this article is somewhat convoluted because each lender's loan term is different from the other, and that justifies the existence of this article. If the loan terms were the same across lenders, then the lowest APR would be the winner, and aspects like origination fee (included in the APR) wouldn't matter at all.