Take care when taking out a loan

Beware! A loan that is easily available is often expensive. The weekly or monthly repayment might seem affordable, but an important question to ask yourself is ‘What is the total cost of the loan?’

The total cost of the loan is the amount you have borrowed plus the interest charged on the loan over the repayment period. A loan of £100 on which you have to repay £150 over a number of weeks is not a good deal.

  • ‘Typical APR’
    Some companies advertise a ‘typical’ APR that may be lower or higher than the APR you are offered.
  • Hidden costs
    Many companies add set up fees or loan repayment insurance to the loan – this increases the total cost of the loan
  • High penalties
    Many companies charge high penalties if you decide to pay the loan off early – some companies calculate the interest to be charged at the beginning of the loan period, so paying off the loan costs more: ask how long the loan will take to pay off and how much the total cost of the loan will be.
  • Don’t overload yourself
    Make sure you can afford the repayments on the loan.
  • Interest-free credit
    Interest free credit may seem a good deal, but you often pay more for the goods!
  • Insurance
    Make sure you don’t have to buy insurance on top of the price quoted as this will increase the price of the loan.

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