Many of us will experience a situation where we need to borrow some money in a hurry but despite the possible urgency involved, it makes sound financial sense to take a moment to make yourself aware of the fees and borrowing costs you are agreeing to when you sign the application form.
It is perfectly normal for fees and costs to be attached to a loan product and the significant majority of responsible lenders who are offering their loans are more than willing to answer any questions you have regarding the cost of your borrowing. Here is a look at what you should look out for and check as borrower, so that you can be comfortable that you are fully aware of what you are putting your signature to and be able to make an informed decision to borrow the money that you need without any unexpected surprises.
Charges you might incur
When you take out a loan you will be quoted an interest rate which will be charged for borrowing the money over the period of time you want it for. There are some low APR rates offered at the moment and any extra fees that you might incur in addition to the interest rate charge will be disclosed to you by the lender in their documentation.
Any additional fees or charges might be dependent on how you handle the repayment of the loan and if you miss a payment or are late paying then you can expect to incur a further fee which is often payable immediately.
If you are late making your payment on a credit card or loan agreement that you have taken out or actually miss the payment altogether, you are usually expected to pay a late payment charge. Late payment charges are normally in the region of £12.00 for each missed or late payment and you should also consider the fact that a late payment on your credit file could affect your ability to borrow money again in the future.
The most sensible advice is to set up a direct debit for the repayment each month so that you don’t forget or miss the payment date and this will also ensure that you don’t needlessly incur a late payment charge, which adds to the cost of your borrowing as well as potentially spoiling your credit rating.
Exceeding your limit
If you have a credit card it will have been issued with a credit limit imposed, meaning that you must not spend beyond that figure at any time. If you do go over the limit you will probably find that attempted purchases using the card are declined but even exceeding your limit by a few pounds could cost you up to £12 for each time.
To avoid potential embarrassment when your card payment is declined and to ensure that you do not have to pay an over-limit fee, check your balance regularly online or over the phone so that you always know how much money you have left to spend.
If you do set up a direct debit to pay your loans make sure that there is enough money in your account to cover the payment on the due date. A payment returned by the bank could be very costly as the loan provider will charge you a returned payment fee for a failed direct debit and your bank might also charge you as well.
It may sometimes be tempting to use your credit card for cash-withdrawals but this is generally an expensive idea and not an efficient way of using the credit provided to you. Most card companies will charge you a percentage of the amount you withdraw as a fee with a minimum charge of between £2 and £3 and they may also charge you a higher interest rate on the cash borrowed compared to the normal rate for purchases if you don’t pay the amount back in full when you get the next statement.
Borrowing money can be relatively cheap and convenient provided you stick to the rules you signed up for and don’t leave yourself vulnerable to additional fees and charges by paying late or missing a payment altogether.
Molly Perkins enjoys her work as a money management counselor. She often writes about personal finances and how to make smart decisions to achieve both long and short term goals.