Taking out a loan is extremely simple nowadays, with so many companies offering loans to more people and at excellent rates. However, some of the deals that seem to good to be true often have hidden charges that can make the loan costs much higher than you might have known. If you know about the dangers of these hidden charges, then you can easily avoid them and get a loan that is cheap and fair. More than just APR When you are shopping for a loan, you need to remember that the costs involved in repayment are more than just the advertised APR or Annual Percentage Rates. There are many other charges that you need to take into consideration, many of which the lender will not clearly point out. It pays to know about these extra charges, so that you can get a loan that suits your needs and doesnt put you under financial pressure. Redemption fees Most lenders do not talk about redemption fees when you make your application, but they are something that you should know about if you want to pay back your loan early, which many people do. When paying back your loan early, many lenders will charge you up to two months interest for doing so. These penalties are usually the same whether you pay back your loan straight away or a month before it finishes. However, more and more lenders are starting to reduce or scrap these penalties, as borrowers become more aware of their implications. Before taking out a loan, find out whether or not the lender charges redemption fees, especially if you are taking out a loan that you will repay early. Rule of 78 Redemption fees are not the only thing you should look out for if you are going to repay your loan early. There is also a charge called the rule of 78. This rule is quite complex, but lenders rarely mention it. Basically, if you repay your loan early, then you have to pay extra interest. This interest is calculated on a sliding scale, and is so called because it originally came from adding together the interest from the first 12 numbers of a 12-month loan. So, the earlier you pay back your loan then the more interest you will pay. Although this charged has now been scrapped for all new loans, if you already have a loan then you should check to see if this rule applies to you. Loan insurance Perhaps the biggest trick that lenders play on unknowing borrowers is to simply include the cost of loan protection within your payment. Many lenders will simply give you a quote that includes the loan protection cover, which can often cost you a lot of money. Also, the lender might include the full cost of the cover at the beginning, meaning any interest or penalties are paid on a higher amount than just the loan amount. You should always ask a lender whether the quote they have given you includes protection or not. If it does, then think about how much you could save without the protection. Of course, protection can be useful if you think you will need it, but there are cheaper options. Your current employer may cover you for some of the protection clauses, or you can get similar loan protection from other companies at much lower rates than the primary lender. Making sure you have the right loan insurance for your needs can save you literally hundreds of pounds in charges. Just remember that once you know about these hidden charges, it is easy to avoid them and find a great loan deal. |
