Key factors that shape your loan costs

A loan can be an excellent way to finance anything from relocating in a new city to education costs or a new car. To understand a loan’s total cost, though, it is important to review more than just the monthly payment amount. By looking beyond monthly payments to key factors such as APR, fees, and term length, you can make a smart, affordable loan choice. Your repayment habits, such as making payments on time, can also play a role in the overall cost of borrowing. 

Annual percentage rate (APR)

What it means: The APR of a loan tells you the total cost of borrowing money with that loan over one year. This percentage combines the loan’s interest rate with upfront fees, such as origination fees, that are commonly charged by lenders. A fixed APR remains the same over the duration of the loan term. A variable APR has an introductory period, after which the rate adjusts periodically. 

What to know: If two loans have the same term, the loan with the lower APR will cost less overall. For comparing the true cost of different loan offers, APR is more accurate than interest rate or monthly payments because it includes fees. 

APR at UNFCU: You can see the starting APRs for various UNFCU loans on our Rates page. If you are approved for a loan, your APR may differ due to factors including:

• The term of the loan
• Your creditworthiness
• Your UN contract type, if applicable
• The amount you borrow 

Your creditworthiness may be influenced by your repayment history — late or missed payments can negatively impact your credit profile, which may result in a higher APR and increase the overall cost of your loan. A limited credit history is another factor that can influence your creditworthiness. 

Origination fee

What it means: Many lenders charge an origination fee to cover the cost of setting up your loan for you. An origination fee can be as much as 10% of the loan amount.  

What to know: If your lender charges an origination fee, the fee will be included in the APR of your loan. Often, an origination fee will be taken out of the approved loan amount before you receive the funds.  

Origination fees at UNFCU: UNFCU does not charge an origination fee on non-mortgage loans.

Term 

What it means: The term of your loan is how many months or years you have to repay the principal and interest. 

What to know: With a shorter term, your monthly payments will be higher, but the total cost of the loan will be lower. This is because less interest will accrue. With a longer term, your monthly payments will be lower, but the total cost of the loan will be higher. When you choose a term, look to balance affordable monthly payments with an overall cost that makes sense for you. 

Loan terms at UNFCU: At UNFCU, the term for many loans can be up to 15 years. With a shorter term, you can receive a lower interest rate.  

Pre-payment penalty 

What it means: Some lenders charge a fee if you pay your loan off early or make extra payments. 

What to know: Paying more than the required monthly amount can help you save on interest and become debt-free sooner. Especially if you are considering a longer term, look for loan options without pre-payment penalties. This way, if your income increases or your expenses decrease, you will have the flexibility to pay your loan off early. 
It is also important to choose a monthly payment you can consistently manage, as late or missed payments can increase your overall borrowing costs over time and impact future loan terms. 

Pre-payment penalties at UNFCU: UNFCU does not charge pre-payment penalties.