When you’re looking at taking out a loan, there are always extra charges involved. It is never recommended to take out a loan, unless you have the means to pay it back. Depending on the type of loan you take out, the charges and interest alone can actually cause you to be in a worse situation than before you took out the loan. It’s always important when you are applying for a learn or comparing what’s available to work out just how much it will actually cost you to repay.
The Annual APR
The annual APR is the interest rate charged on the balance of a loan. For example, if you have an 20% APR on a loan, you’ll be asked to pay back 20% of the loan amount, on top of the loan itself. So, if you were to take out a loan of £1000, your total for the year to pay back would be £1200. However, if you had still been unable to pay anything back, the following year you would be charged 20% out of the remaining balance (£1200) on top of the balance (£1200 + £240 = £1440). Therefore, you are able to calculate how much you will be paying back by working out how much you can afford to pay back over time, and what the interest will be on top of that for each given year.
If you wish to pay back your loan earlier, you may have early repayment charges to contend with. Some providers charge for early repayment if they offer good deals for the first year. It’s always best to check the small print of your terms before opting for what seems like a good deal. Then you can calculate how much you may be paying in extra charges, if you wanted to pay off your loan earlier and get out of debt.
Is your loan secured?
Secured loans, also known as logbook loans, they are a type of loan whereby you use an asset such as your car or property as a type of guarantee against the loan. It, therefore, means that if you are unable to pay the loan back your asset will be owed to the lender instead of the money for the loan. When calculating the cost of a loan, you may also want to incorporate the asset used as part of the cost. It may be that you will need to give this up, in order to repay the loan which could cost you more than the actual loan itself. However, it can provide peace of mind that the loan will be paid off even if you were unable to meet the payments.
Some lenders charge an origination fee when applying for a loan. This is a fee set by the lender and charged on entering the agreement to take out the loan. They are normally quoted in the process of applying for the loan, but it’s always best to compare prices and hunt around to make sure you’re not overcharged.
Calculating how much a loan will cost isn’t as difficult as it may seem. Make sure you read the small print and understand the charges as well as the terms of the policy first before you take out a loan. It’s always worth to have a look to see it if it worth switching to keep yourself with a good credit score.