How are loans charged?
A private loan is a lump sum that you usually borrow from your bank or building society bank, or through a retailer where you are buying a pricey item such as a car or domestic appliance. You agree to pay back the loan over a fixed number of months (called the "term") by making set standard payments. There may or may not be an arrangement charge when you take out the loan, relying on the bank chosen.
You can generally pay more for payment protection insurance which pays your monthly payments for you if you are unable to work because of sickness or redundancy. Interest is charged at a non-variable rate reliant upon the amount you borrow. Most banks will allow you to pay off a private loan early i.e. Before the end of the term, however there is regularly a charge equivalent to part of the interest you would have paid had you kept the loan for its full term.
What is APR?
What you pay for a personal loan can be voiced as an 'Annual P.c. Rate ' or APR. APR takes into account:
- the interest on the loan;
- any other charges you must pay for instance. Any arrangement fee or the cost of payment protection insurance
- the term of the loan.
You do not need to know the way to work out an APR. The main thing is that APR shows the cost of borrowing on a standard basis so you can compare the APR of one bank with another and immediately see who is the cheaper bank for a similar borrowed sum and term. A loan with a lower APR is cheaper than a loan with a higher APR. The APR also allows you to compare the cost of private loans with other sorts of borrowing such as credit and store cards. It is important to remember though that APR does not take into consideration charges such as an early repayment charge if you clear the loan before the end of its term. What are loan terms?
Not to be confused with term (period of a loan) terms are special conditions and exclusions a bank may impose depending on private circumstances or the aim of the borrowing. Some loans are restricted to particular uses for instance. Home improvements and not for the purposes of debt consolidation etc. You may be required to open a current account with the lender if you're not an existing banking purchaser. You may be required to take out payment insurance but generally this is optional. Check what charges are made if you make a decision to pay off the loan early.
A private loan is a lump sum that you usually borrow from your bank or building society bank, or through a retailer where you are buying a pricey item such as a car or domestic appliance. You agree to pay back the loan over a fixed number of months (called the "term") by making set standard payments. There may or may not be an arrangement charge when you take out the loan, relying on the bank chosen.
You can generally pay more for payment protection insurance which pays your monthly payments for you if you are unable to work because of sickness or redundancy. Interest is charged at a non-variable rate reliant upon the amount you borrow. Most banks will allow you to pay off a private loan early i.e. Before the end of the term, however there is regularly a charge equivalent to part of the interest you would have paid had you kept the loan for its full term.
What is APR?
What you pay for a personal loan can be voiced as an 'Annual P.c. Rate ' or APR. APR takes into account:
- the interest on the loan;
- any other charges you must pay for instance. Any arrangement fee or the cost of payment protection insurance
- the term of the loan.
You do not need to know the way to work out an APR. The main thing is that APR shows the cost of borrowing on a standard basis so you can compare the APR of one bank with another and immediately see who is the cheaper bank for a similar borrowed sum and term. A loan with a lower APR is cheaper than a loan with a higher APR. The APR also allows you to compare the cost of private loans with other sorts of borrowing such as credit and store cards. It is important to remember though that APR does not take into consideration charges such as an early repayment charge if you clear the loan before the end of its term. What are loan terms?
Not to be confused with term (period of a loan) terms are special conditions and exclusions a bank may impose depending on private circumstances or the aim of the borrowing. Some loans are restricted to particular uses for instance. Home improvements and not for the purposes of debt consolidation etc. You may be required to open a current account with the lender if you're not an existing banking purchaser. You may be required to take out payment insurance but generally this is optional. Check what charges are made if you make a decision to pay off the loan early.
About the Author:
Peter Parker is a fiscal analyst with an acumen for finance and insurance. Recently he has taken up to provide independant fiscal advice on payday loan and company loan with his educational articles.
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