The banks make it as hard as possible for borrowers (business, home and personal). They have different up-front fees, different interest rates, different penalties for early payouts, some have fixed lower rates for the initial period and so on.
How is one to compare the Bank of Apples with the Bank of Pears? Rough guesses? Relying on loans officers at banks?
Which is cheaper: a $80,000 15-year loan fixed at 6.5 per cent for the first year, then to the variable rate of 8.75 per cent with no up-front fees and monthly payments or a $80,000 15-year loan on the variable rate of 8.5 with fortnightly payments and $500 in up-front fees?
(Answer below).
The tailored apples-and-pears loans are all provided in the name of competition, of course. That is the market.
The banks will not help with genuine comparisons. They argue circumstances change, interest rates change, people’s circumstances change and so on. It would be misleading to make comparisons.
Well, the market is strong force. If the banks will not produce genuine comparison rates, someone else will. That is the market.
Topical Software has released Compare the Banks software at the delicious price of $22 plus $2.50 post and packing. It will run on any DOS machine direct from the floppy. No wasting hard-disk space.
You enter the name of the bank, the amount, the initial and later interest rate, the term, fixed charges, exit fees and so on. You do the same for the several bank loans you are comparing. The program then dishes up the overall cost of each loan.
You can also work out whether it is worth re-financing an existing loan.
It is better to run the program with a colour monitor or three-tone monochrome. Bits of writing disappeared on my Collingwood-supporting lap-top. Also there is no easy escape sequence if you mess up your input, other than rebooting. Perhaps they could make it even cheaper by putting the 12 pages of A4 manual on to a readme.txt file.
That said, this program will pay for itself easily. Orders on (03) 4822296.
Answer: the cheaper loan is the one that does not entice the borrower with no fees and a lower first year’s payments but has a quarter of a per cent cheaper rate over the 15 years and fortnightly payments.