Interest Rate in Selecting a Loan

See Also:
What is Compound Interest
Effective Rate of Interest Calculation
Interest Expense
Nominal Interest Rate
Interest Rate Swaps

Why is the interest rate in selecting a loan not the best indicator? First off, the interest rate is always important. It determines the size of your loan payments.
There are, however, other considerations which may lead a borrower to not select the loan with the lowest interest rate.

Flexibility

A lender who is willing to structure the terms of a loan more favorably from the borrower’s perspective may be offering a more attractive deal than a competing loan with a lower interest rate and more stringent terms.

Experience

A banker who understands the nuances of your company’s industry and has contacts within the industry may make a loan at a higher interest rate worth it. In addition, if you are considering a potential sale of your business a lender experienced in such transactions may make for a much smoother transaction.

Turnaround

Often it is crucial to have expedited access to borrowed funds. A lender who can process your loan within a short period of time may be your best option.

Relationship

Does the prospective lender have a significant interest in obtaining your business due to their size or their desire to enter a new industry? This may afford you the opportunity to establish a relationship and eventually obtain more favorable terms, including a lower interest rate in the future for your borrowing needs.
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