How are loans charged?
A private loan is an one-off sum that you typically borrow from your bank or building society bank, or through a retailer where you are purchasing a dear item like a car or domestic appliance. You agree to pay back the loan over a fixed number of months (called the "term") by making set regular payments. There may or may not be an arrangement charge when you take out the loan, depending on the lender selected.
You can usually pay more for payment protection insurance which pays your monthly payments for you if you're unable to work because of sickness or redundancy. Interest is charged at a standard rate reliant upon the amount you borrow. Most banks will enable you to pay down 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 Percentage 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 price of payment protection insurance
- the term of the loan.
You do not need to know how to work out an APR. The most important thing is that APR shows the cost of borrowing on the standard basis so you can compare the APR of one lender with another and immediately see who is the cheaper lender for the same borrowed sum and term. A loan with a lower APR is cheaper than a loan with a higher APR. The APR also permits you to compare the cost of private loans with other kinds of borrowing such as credit and store cards. It is important to remember though that APR doesn't consider charges such as an early repayment charge if you pay off the loan before the end of its term. What are loan terms?
Not to be mixed up with term (period of a loan) terms are special conditions and or exclusions a lender may impose relying upon personal circumstances or the aim of the borrowing. Some loans are restricted to particular uses eg. Home improvements and not for debt consolidation and so on. You may be needed to open a current account with the lender if you are not an existing banking customer. You may also be needed to take out payment insurance but usually this is optional. Check what charges are made if you make a decision to pay off the loan early.
A private loan is an one-off sum that you typically borrow from your bank or building society bank, or through a retailer where you are purchasing a dear item like a car or domestic appliance. You agree to pay back the loan over a fixed number of months (called the "term") by making set regular payments. There may or may not be an arrangement charge when you take out the loan, depending on the lender selected.
You can usually pay more for payment protection insurance which pays your monthly payments for you if you're unable to work because of sickness or redundancy. Interest is charged at a standard rate reliant upon the amount you borrow. Most banks will enable you to pay down 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 Percentage 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 price of payment protection insurance
- the term of the loan.
You do not need to know how to work out an APR. The most important thing is that APR shows the cost of borrowing on the standard basis so you can compare the APR of one lender with another and immediately see who is the cheaper lender for the same borrowed sum and term. A loan with a lower APR is cheaper than a loan with a higher APR. The APR also permits you to compare the cost of private loans with other kinds of borrowing such as credit and store cards. It is important to remember though that APR doesn't consider charges such as an early repayment charge if you pay off the loan before the end of its term. What are loan terms?
Not to be mixed up with term (period of a loan) terms are special conditions and or exclusions a lender may impose relying upon personal circumstances or the aim of the borrowing. Some loans are restricted to particular uses eg. Home improvements and not for debt consolidation and so on. You may be needed to open a current account with the lender if you are not an existing banking customer. You may also be needed to take out payment insurance but usually 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 financial analyst with an acumen for finance and insurance. In recent years he's taken up to provide independant financial advice on payday loan and company loan with his educational articles.
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