Hidden Charges Loans

There are a list of hidden costs to be aware of when you take out a loan.

Make sure that the APR advertised is the one you are offered when you apply for the loan. You may find that the one you originally wanted is not availble to you as the other one does not meet your personal circumstances.

Does the lender charge interest on a daily or monthly basis? Most lenders charge you interest monthly and this can cost you more if you pay off the loan early. It is estimated that 70 per cent of borrowers pay off their loans early.

Check whether the monthly loan payments consist of any loan protection insurance payment as well as the loan payment itself. Some lenders add this on automatically. This is also known as ASU, which stands for Accident, Sickness and Unemployment cover. If the full cost of insurance is added to the loan then interest will be due on that sum also.

The 'rule of 78' is a system which many lenders use to calculate early repayment costs. This calculation is based on the amount of interest you will have paid at any time during the duration of the loan. This system states that you should pay more interest at the start of the loans and because each repayment is of the same value, the part of the loan paying off the actual perceived borrowed amount increases over time.

If you decide to pay the loan early the lender may use the rule of 78 to decide just how much interest you do not have to pay. Sometimes, the interest element, being larger in the repayments at the beginning of the loan means there is usually a larger amount of capital left to be repaid. Lenders argue that the Rule of 78 offsets the overall cost of setting up and then cancelling the loan.

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