Citizens Advice Bureau
This week, CAB’s Tom Togher gives his tips on credit deals
BEFORE you borrow money it’s important to make sure you get the best deal you can and will be able to keep up the repayments.
If you don’t keep up the repayments, you could be taken to court and might even lose your home or other valuable possessions.
If you have a poor credit history, you may have to pay more for your borrowing. Many lenders offer loans or credit cards with a range of interest rates that vary according to your credit history. If you are finding it difficult to get a loan or credit, it’s worth checking if you have a credit union in your area.
Credit unions are one of the country’s best kept secrets, many of which also operate special Christmas saving schemes.
You can save with them, and when you need to borrow, you can usually borrow a multiple of your savings.
In Salford you can find out more information about Salford Credit Union at www.salfordcredit union.com or by calling 0161 686 5880.
To find a credit union near you and check out what your local credit union offers, you can:
Search on the Association of British Credit Union (ABCUL) database at: www.abcul. org.uk
Call ABCUL on 0800 015 3060
Check the ACE Credit Union Services website at: www.acecus.org/pages
Shopping around for credit deals:
Once you have chosen the type of borrowing that suits you, you can look around for the best credit deal.
To get the best deal available, you need to spend a bit of time looking at what is on offer from different lenders. It’s a good idea to get a few quotes so that you can compare cost and other terms of the agreement. Take information home to look at if you can, to give yourself time to take it all in. If you are borrowing jointly with someone else, make sure you both understand all the terms and conditions. If you are not sure about anything, ask questions before signing the agreement.
Comparing the cost of credit deals:
The cost of credit can vary enormously depending on the lender and the type of deal you choose. The things to look out for when comparing the cost of the credit deal are:
The Annual Percentage Rate (APR)
Type of interest rate – variable and fixed rates Fees and charges Insurance cover.
The Annual Percentage Rate (APR):
The Annual Percentage Rate, usually called the APR, is a standard way of showing the cost of borrowing. The APR is worked out taking into account the following things: The interest rate Other charges you have to pay
How long the agreement lasts
The amount and timing of the repayments.
Some charges aren’t included in the APR. These include things like charges made if you pay off the loan early.
Lenders have to tell you what the APR is before you sign an agreement.
The APR varies from lender to lender and between different types of credit.
You can use the APR to compare what deals are on offer. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, shop around.
Comparing the APR works best if you are comparing similar types of credit over the same repayment period. For example, loans for the same amount to be paid back over the same number of years.
Understanding the terms and conditions of the credit deal
When you borrow money, you and the lender will sign a credit agreement. This sets out details of all the things you and the lender agree to do as part of the deal. This is called the terms and conditions of the agreement.
Always read the small print before signing anything. Most lenders have a legal duty to provide pre-contract information which you can take away with you and study.
The information which must be provided includes: The amount of credit The total charge for credit The rate of interest Repayment details, for example, the number and timing of instalments
Statements of consumer protection rights and what you can do if things go wrong.
Some lenders will make it a condition that you offer your property, usually your home, as security for the loan. This is called a secured loan.
If you don’t keep up repayments, the lender can take court action to repossess the property.
Repayment arrangements will vary depending on the type of borrowing. The lender can tell you what options there are for making repayments.
Bank loans usually have to be repaid by direct debit from a bank account so you need to check you have the right arrangements in place.
The Money Advice Service website has an online loan calculator which can help you decide whether you can afford the repayments and compare different loans.
Payment protection insurance:
Payment protection insurance will cover your repayments in certain circumstances such as losing your job or being off sick for a long period of time.
However, this sort of insurance may not be suitable for you.
For example, it isn’t suitable if you are self-employed or have already been diagnosed with an illness.
If you are offered payment protection insurance as part of the credit deal, check whether you would be better off to buy it separately from another provider.
You can also find information about payment protection insurance on the Money Advice Service website at: www.moneyadvice service.org.uk.