Choosing the right loan — APR, fees and prepayments matter
A loan's headline interest rate rarely tells the full story. Processing fees, origination charges and PMI quietly inflate the effective rate. The APR (Annual Percentage Rate) bakes those costs into a single comparable number — always compare APRs, not just nominal rates.
Reducing balance is the default for most modern loans: interest is recalculated each period on the outstanding balance, so payments shift from mostly-interest early on to mostly-principal later. Flat rate loans charge interest on the original principal for the whole tenure — they look cheap on paper but cost significantly more.
Payment frequency matters. Switching from monthly to bi-weekly effectively makes one extra monthly payment per year, shaving years off a long mortgage and saving substantial interest.
Prepayments are the single biggest lever you control. Even modest recurring extras applied to principal can cut tenure dramatically. Always confirm prepayment penalties before committing.
For Home and Student loans, tax rebates on interest paid (e.g. India 80C/24b, USA Mortgage Interest Deduction, Student Loan Interest deduction) can reduce the effective cost. Our Tax Benefit tab gives a rough estimate — talk to an advisor for your specific situation.