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Loan Extras – Adding Them To Find the True Cost of a Loan

These days, financial advisors and banks will always give you one vital piece of advice when you are considering borrowing any amount of money, from anyone. That advice is to shop around. By shopping around, you gain a number of benefits that are virtually unobtainable in any other way. Not only will you be informing your self of the current market, and know what to expect from lenders, but you will be giving your self the best possible chance of securing a good deal from a good lender. This is the surest and safest way to make sure you are not walking into a rip off when borrowing money.

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Also, considering the amount of money people borrow these days, and the amount of interest that is repaid annually, getting a good deal on loans is one of the most important financial planning habits that you can have. Almost all of life’s major expenses these days involve some form of credit, from buying for your home or car, to paying for education and holidays. It is well worth the effort in shopping around for good offers. Also, it is becoming easier and easier to shop around and find out what is available on the market with the internet. Nowadays, almost all lenders have a website with all their lending details, the rates and terms and conditions that are available, and they will also have an online application form that you can fill out and get an instant quote on a loan, what interest rate you will be charged, how much you can borrow, and what the terms of the loan will be. Therefore, you can use concrete offers and information when you are searching through the maze of lenders to judge for yourself which loan you think is right for you.

Using APR To Find the Best Loan

Most of these loans will quote you an APR or annual percentage rate, which has been designed by the government to allow shoppers to easily compare the price of loans. The APR will have to be calculated according to a statutory formula that will be exactly the same for all lenders. In this sense it does give you a very useful figure for comparing the relative prices of different loans. However, there are many charges and fees that may or may not be included in this figure and therefore, you should be very cautious about simply accepting the APR figure without any other questions and make sure you ask the lender about certain other fees and charges that are commonly used to increase the cost of a loan.

Some of the most common charges applied by lenders are listed below:

As well as these types of expenses, there are other optional extras that lenders will try to get you to buy, or sometimes force you to buy, in order to get the loan in the first place and these must be factored in to the overall cost of the loan if you are to give yourself an accurate picture of what the loan will cost.

For example, with some types of loan, especially large loans like re-mortgages, you will be charged an arrangement fee for the bank to set up the loan. This can sometimes be as much as five hundred pounds or more so the charge is significant and should not be ignored when you are looking at the cost of the loan. Other charges, which are common for credit cards and overdrafts are annual charges for the service. Many credit cards for example will charge you a monthly or annual fee simply for having the loan available to you. Other fees will include settlement fees at the end of the loan. These will sometimes be added to loans such as leases for cars. Another charge that will also be added to all loans is late payment charges and penalties. If you are late with payments then lenders will almost always penalise you with harsh penalties.

Loan Terms and Conditions

As well as the interest and the extra charges and fees that may be applied to loans, you should look at terms of the loan agreement that may cause the rate of interest to be increased. Sometimes loans offer you a special introductory interest rate that then increases to a higher rate, and sometimes, there are terms that will automatically raise the interest rate to a much higher rate if you fail to meet all your repayments on time. Also, if your loan is in a variable rate, your interest rate will fluctuate as the base rate varies.

If you opt for optional payment protection insurance, make sure you understand the contract and in what limited circumstances it will actually pay out. By the time you have factored in all of these extra charges, you should evaluate again if you can afford the loan.

 

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