Loan Penalties and Common Charges
Once you’ve made the decision to take out an unsecured personal loan shopping around for the best deal can seem confusing at times. There are a large number of companies offering different kinds of deals with different APR rates, some dependant on length of loan term, amount you wish to borrow and in some cases, the purpose of the loan which are all important considerations.
However, while looking at APR rate is very important when choosing a personal loan there are a number of other variables to be taken into account. Different loan companies apply a range of different penalties and charges on their loans, some at the start of the loan term, some during and some at the end. Some of these charges may be applicable to all customers while others only apply to certain customers, for example those who wish to repay their loan early.
There is no right or wrong, for different people certain penalties may be more detrimental than to others so it’s useful to have a clear idea of what to expect so you can choose a loan that exactly suits your requirements.
Arrangement fees are a charge levied at the start of your loan term purely for setting the deal up. There are plenty of personal loan companies who don’t charge arrangement fees of any kind around so this is an easy one to avoid having to pay. If for some reason you find yourself in a situation where you are faced with having to pay arrangement fees they generally tend to be a small percentage of the loan amount; usually 1%.
Sometimes a loan company will charge a fee if you apply in unusual circumstances in which case the fee may still stand at 1% or may be slightly higher.
In most circumstances these kinds of fees shouldn’t concern consumers, the majority of loan providers don’t charge any kind of arrangement fee. Should the company you are considering taking a loan out with charge an arrangement fee, you would probably be best advised to shop around and see if you can find a similar deal elsewhere, the Internet is a good place to shop for loan deals that come with no arrangement fees.
24 Hour Loan Transfer
Many loan providers will transfer your funds directly into your account or by courier check within 24 hours of your personal loan being approved. However this usually comes at a small charge, currently this is typically somewhere between £20 and £50, however charges for this type of service will vary between loan providers and over time.
Most personal loans are paid to the customer fairly quickly, often between 3 and 5 working days, so unless the money is urgently required you may be best advised to avoid using this service. However should you decide you want to take advantage of quick access to your money the costs are relatively low.
Early Repayment Penalties
Early repayment penalties form some of the more expensive loan charges to be levied against the customer and there has been much debate on the fairness of penalising customers who show financial savvy and clear their debts quickly. The title is fairly self-explanatory; if you decide you can afford to pay your loan off early you will be charged for doing so. The exact details of the charges vary slightly, but currently it tends to be between one and two months interest.
Although the idea of early repayment penalties does sound unfair, be sure to consider your circumstances before rejecting a loan purely on this basis. If it is unlikely you are going to wish to pay your loan off early you may get a cheaper deal with a provider who charges for early repayment.
However you can still get good deals without being liable for early repayment penalties, although they may tend to be at a slightly higher rate of APR, you need to be aware of what kind of service you want when deciding on the deal you wish to go for. Morgan Stanley offer loans with no early repayment penalties and Intelligent Finance offer customers the choice between a loan with no early repayment penalties and one that has a lower rate but will penalise you for repaying early.
Payment Protection Insurance
Even with the best planning in the world no one can be assured they are covered for every eventuality. Should sickness or unforeseen job loss occur you would still be liable for your loan repayments and it is precisely for this reason that so many consumers take out payment protection insurance.
In principle it is an excellent idea, covering you should the worst happen and ensuring your loan repayments are still met, however it is important to examine the policy you plan to take out carefully. Particularly if you plan to take out a policy with your loan provider, some loan providers charge over £2,000 for payment protection insurance for a loan over 5 years. This adds considerably to the cost of your loan and can render the great deal you searched for much more expensive.
In order to ensure you are covered for your loan repayments should the worst happen it’s important to investigate payment protection carefully. Some providers, such as Cahoot, currently offer better deals on insurance. However an alternate way to get a good deal is to obtain your loan insurance separately through a company such as Payprotect, who currently offer insurance at a fraction of the cost of most loan providers.