Student loans: Which loan offer is the best for you?

When you apply for a loan, what is the thing that you look for when you compare 2 offers from different banks? Ask this question at random and the answer will invariably be interest rates. However, this is where incomplete information or misleading messaging can lead one to make sub-optimal choices. 

Consider this case:

Bank A offers you a 1-year loan at 12% interest rate but Bank B offers you a 11% interest rate. Which offer do you take? 

Now consider that Bank A does not charge any processing fee, but Bank B charges a 2-3% processing fee. Does your answer change now?

Consider another scenario:

You notice on Bank A's website that a particular loan is available at 12.5% interest rate. Your friend refers you to another amazing institution that advertises a 9.33%* loan. Assume for now, that both companies do not charge a processing fees. Taking the second offer now looks like a slam dunk, doesn't it?

Chances are you did not notice the star (*) next to the 9.33 with the footnote and the actual calculations hidden somewhere else out of plain sight. 

If you are feeling flustered with all this, don't worry. There is a way for you to compare apples to oranges in this case. The right metric to ask your lender is APR or annual percentage rate of charge. This metric combines fees and other charges with interest rates to come up with a single number, allowing you to now compare apples to oranges (converted to apple equivalents :D ). I would recommend folks to go through the following 2 links if they are interested in getting to know more about APR. 

1.) https://en.wikipedia.org/wiki/Annual_percentage_rate

2.) https://www.nerdwallet.com/blog/small-business/apr-small-business-loans/

Watch the first 2 minutes of the following video to get a better sense of what an APR does.

There are other factors you need to consider when applying for a loan

1.) Speed of processing the loan application

2.) Convenience

3.) Add-on benefits, if any

Lenders in India do not advertise APR and chances are the loan sales officer at a bank/financial institution that you are talking to might not realize what an APR means. At GyanDhan, our aim is to inform our student borrowers of the best choice that they have given their profiles and match them with the best partner offer after considering all the above parameters.