It’s not uncommon to find yourself in a position where you desperately need to borrow a little extra money. If you’re thinking of turning to lenders like banks, building societies, or credit unions and asking for a loan to help you afford the things that you need, it’s crucial to work out exactly how much you’ll need to pay back when it comes to the amount of credit you’re taking, including interest payments, and fees.
Calculating a reliable repayment plan for borrowing means taking all of the different costs of a loan into account, not just the exact amount that’s being borrowed, or how much you can afford to pay to a lender on a monthly basis. Taking the time to ensure that you know the full cost of your borrowing will help you to make sure you have the resources to plan your future finances and avoid potential debt concerns.
The Factors that Impact Borrowing Costs
Usually, the amount that you’ll need to pay in order to borrow money will depend on how much you need to lend, and how quickly you plan on repaying whatever money you get access to. For instance, if you’re only wanting to borrow a small amount of money for a short period of time, and you can get access to a low interest rate, then you might not have to pay very many fees to get your hands on the cash that you need.
However, on the other hand, if you need to borrow a large amount of money for a long period of time, then you will need to pay more in terms of interest. In general, you’ll need to use APR to help you compare the products that are available to you. The lower your APR is, the better off you will be, but it’s important to also consider your needs overall.
Understanding Flexible and Regular Payments
A loan agreement will often come with a specific amount that you need to pay back each month. Your loan may also come with an early repayment fee if you choose to clear your debt ahead of time. Repaying your debt early, either in part, or in full, can help to reduce the costs that you pay for a loan overall. If you took out a loan after the first of February 2011, then the law dictates that you won’t be charged any fees for early repayment. However, this rule only applies if the amount that you repay is less than £8,000. If the amount you’re repaying is over that amount, the fees that you will need to pay will be capped.
It’s possible for any borrower to ask for a settlement statement that shows how much you could save by repaying early. Additionally, there are other forms of borrowing out there such as credit cards and overdrafts that are more flexible with no minimum payments, or low repayments. Of course, the interest rates on these products are usually quite high, and some overdrafts will also charge initial arrangement fees.
Making regular repayments can make it hard to budget for people who have fluctuating incomes. However, regular repayments mean that you know exactly how much you need to pay each month, and when you should have cleared your debt. You will also find that you can usually repay your loan early without any penalty.
The Costs of Borrowing Credit
You can work out exactly how much it might cost to borrow a certain amount of money using a credit card or loan using the information that lenders give you. By law, all lenders must tell you exactly how much you’ll need to repay in total, and how much you will be expected to pay each month. You will also be given information regarding the interest rates, charges, fees, and APR.
The information needed to calculate the cost of borrowing can be found on the loan or credit card company’s website, and it should also be in the pre-contract information form. If you can’t find this information, you can ask the company to send it to you before you enter into any agreements. In the case of credit cards, the amount you need to pay will be based on assumptions of how you will use your card.
The most important thing to remember with any kind of credit is that you need to keep up with your repayments. If you miss your repayments, then you may be required to pay additional charges and fees. What’s more, your existing credit rating could be damaged as lenders look at how you have managed your existing credit to determine your risk as a lending opportunity. Make sure there’s enough money in your building society or bank account each month to cover your repayments and set up regular standing orders.