Things you should know
What to look for and points to consider before you sign
When you agree to any type of borrowing, you're entering into a contract.
So its important you read everything and really understand what you're committing
to and what can happen if you don't stick to it.
Credit scoring (or rating as its sometimes known) whenever
you complete an application to borrow money, your answers and often computer software
are used to help the lender predict how big a risk they're taking by lending you money.
This is called credit scoring. You can read in more detail about this in the next
section.
Interest and APR when you borrow, you'll be repaying more than
the initial amount in the form of interest. And the rate will vary according to the
type of loan. When comparing your options, look at the APR (Annual Percentage Rate),
this takes into account any administrative fees and other charges. So be sure to look
at this as well as the interest rate stated, as they may not be the same. But on the
whole, the lower the APR, the lower the monthly payment will be.
Beware of charges and small print some types of loan may be
front-loaded with interest, meaning that when you start repayments, you're only
paying the interest and not reducing the amount owed. If you plan on paying it off
before the end of the agreed term, you may find that you still owe more than you
thought, so ask up front before you sign. Also be aware of any admin fees that may
be added to the final payment.
Consider protection if you were to lose your job, would you be
able to keep up the payments? When you take out a loan, you may be offered Payment
Protection Insurance, which is designed to cover you if you are suddenly unable to
make payments due to a change in your circumstances. However, it will add to the
monthly repayment, so be sure you factor this in. Think carefully, and check if you
have sufficient cover with any other financial products that would cover this too
such as income protection through your employer.