How many times have you successfully applied for a loan or credit card without first checking the small print involved? You may not realise it but a myriad of hidden costs and charges are often buried away in the lower reaches of a loan agreement, and signing your life away without investigating them fully could cost you thousands of pounds over the course of a loan term. Know exactly what to look for – and where to look for it – and you can protect your financial interests and find low cost personal loans relatively easily.
Early repayment charges
Let’s face it; none of us want to be in debt any longer than we have to. If the chance of breaking free from your loan agreement early is available, you’ll probably want to save yourself an enormous amount on interest charges and settle early, right? However, there are often early redemption penalties involved in settling before the contractual end of your loan agreement, and they can run into hundreds of pounds. Compare the early redemption charges of several different lenders before committing to a loan. Or if you want to avoid them altogether, take a close look at some of the highly competitive peer to peer personal loans that are currently available which typically do not charge for overpayments or early settlements.
Representative APRs
One of the first factors that entice anyone to a loan product is the advertised APR. While you may think that the cost of borrowing seems reasonable, it’s important to remember that the advertised rate won’t necessarily be the rate you pay. Depending on your credit rating and employment status, you could end up paying a great deal more for your loan than you bargained for. Ask a representative of the lender to fully explain the APR you’ll be charged before you put pen to paper on your loan.
Late payment penalties
Despite your best intentions, there is always the chance of a missed or late payment. Whether you lose your job or simply forget to make the money available for a direct debit, a lot of lenders will seize the opportunity to make money by charging you. And depending on the terms of your agreement, charges could be applied periodically until you bring your account up to date – which includes paying the penalties you’ve incurred as well. Again, it’s always a good idea to compare late payment charges before choosing a loan, as well as having contingency plans in place should you lose your job before your loan is repaid.
Arrangement fees
An arrangement fee is supposed to reflect the administration costs involved in processing your loan application. While some lenders will apply this charge upfront (considered bad practice amongst respectable lenders), most will add the charge to your loan, and then charge interest on the total amount. Make sure you understand exactly how the arrangement fee will be paid for before signing up to anything, and compare fees from at least three lenders before you select one.
Payment breaks and deferments
Some loan providers will give you the chance to take a payment break, but usually at a cost. If you are planning a career break, or you’re worried about the future of your job, this could be helpful, but remember to check exactly what taking such a break will cost you. It could be a fixed charge, extra interest or a combination of both.
Loan providers all make their money in different ways – using a combination of interest and a schedule of charges. Understand exactly how these charges are applied, and you could save yourself an enormous amount of money over the course of your loan term.
