Carlo wants to study his MBA overseas, but like many students he’s a little strapped for cash. He needs an international student loan, but with a few options out there, Carlo is a little confused about which will work best for his bank balance.
Carlo has found two options: Option A and Option B.
When most students take a loan, what’s the first thing they look at?
Right, who’s offering the best interest rate.
So what’s the deal here? Option B, correct?
Woah, hold up Carlo; not so fast.
In order to compare offers, you really need to look at the APR. Your APR, or Annual Percentage Rate, is effectively the total cost of borrowing.
While interest rate is what your monthly loan payments are calculated on, the APR takes into consideration the interest that you’re going to pay over the life of the loan plus any fees associated with obtaining that loan. All of these factors are combined into an annualised measurement, helping you compare apples with apples.
So how can you break this down?
First, you need to look at your interest rate, which could be a fixed rate, or can consist of a variable base rate plus a margin; for example, LIBOR plus seven percent. There are a few base rates that lenders use, so be sure to compare the correct rates.
Once you’ve worked out your total interest rate, take a look at your fees next.
Now that we know what APR is, how do we work it out?
Let’s help Carlo take a look at his two quotes. Carlo wants to apply for a student loan of $50,000. Option A is offering a US LIBOR base rate and Option B is using a US Prime base rate. If we add the variable base rate plus the margin, we can already see that Option A is clearly the better choice, but we need to look at the whole picture. By continuing to work out the APR, including any upfront fees, we can clearly see that, even though Option B looked great at the start with its lower advertised rate, Option A is the more cost-effective choice.
And that adds up to $4000 saved over the duration of the loan. Some of which will definitely be spent celebrating Carlo’s newly acquired qualifications. Right, Carlo?
Want to compare apples with apples to pursue your dream international programme?
Prodigy Finance provides the APR for every international student loan it offers qualified borrowers. Now that you understand APR, isn't it time you took the next step?