How are loans charged?
An individual loan is an one-off sum that you usually borrow from your bank or building society bank, or through a retailer where you are purchasing an expensive item such as a car or domestic appliance. You agree to repay the loan over a fixed number of months (called the "term") by making set standard payments. There might or might not be an arrangement charge when you take out the loan, depending on the lender chosen.
You can usually pay extra for payment protection insurance which pays your monthly payments for you if you're unable to work due to illness or redundancy. Interest is charged at a standard rate reliant on the amount you borrow. Most lenders will enable you to repay an individual loan early i.e. Before the end of the term, however there is often a charge equal to part of the interest you would have paid had you kept the loan for its full term.
What's APR?
What you pay for a personal loan can be expressed as an 'Annual Percentage Rate ' or APR. APR takes into account:
- the interest on the loan;
- any other charges you have to pay for instance. Any arrangement charge or the cost of payment protection insurance
- the term of the loan.
You do not have to understand how to work out an APR. The main thing is that APR shows the price of borrowing on a standard basis so that you can compare the APR of one lender with another and straight away see who is the less expensive lender for a similar borrowed sum and term. A loan with a lower APR is less expensive than a loan with a higher APR. The APR also allows you to compare the price of personal loans with other sorts of borrowing such as credit and store cards. It is important not to forget though that APR doesn't take into consideration charges like an early repayment charge if you clear 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 exclusions a lender may impose relying upon personal circumstances or the purpose of the borrowing. Some loans are constrained to particular uses for instance. Home improvements and not for the sake of debt consolidation for example. You could be required to open a current account with the bank if you are not an existing banking customer. You may be needed to take out payment insurance but usually this is optional. Check what charges are made if you choose to clear the loan early.
An individual loan is an one-off sum that you usually borrow from your bank or building society bank, or through a retailer where you are purchasing an expensive item such as a car or domestic appliance. You agree to repay the loan over a fixed number of months (called the "term") by making set standard payments. There might or might not be an arrangement charge when you take out the loan, depending on the lender chosen.
You can usually pay extra for payment protection insurance which pays your monthly payments for you if you're unable to work due to illness or redundancy. Interest is charged at a standard rate reliant on the amount you borrow. Most lenders will enable you to repay an individual loan early i.e. Before the end of the term, however there is often a charge equal to part of the interest you would have paid had you kept the loan for its full term.
What's APR?
What you pay for a personal loan can be expressed as an 'Annual Percentage Rate ' or APR. APR takes into account:
- the interest on the loan;
- any other charges you have to pay for instance. Any arrangement charge or the cost of payment protection insurance
- the term of the loan.
You do not have to understand how to work out an APR. The main thing is that APR shows the price of borrowing on a standard basis so that you can compare the APR of one lender with another and straight away see who is the less expensive lender for a similar borrowed sum and term. A loan with a lower APR is less expensive than a loan with a higher APR. The APR also allows you to compare the price of personal loans with other sorts of borrowing such as credit and store cards. It is important not to forget though that APR doesn't take into consideration charges like an early repayment charge if you clear 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 exclusions a lender may impose relying upon personal circumstances or the purpose of the borrowing. Some loans are constrained to particular uses for instance. Home improvements and not for the sake of debt consolidation for example. You could be required to open a current account with the bank if you are not an existing banking customer. You may be needed to take out payment insurance but usually this is optional. Check what charges are made if you choose to clear the loan early.
About the Author:
Peter Parker is a finance researcher with an astuteness for finance and insurance. Lately he took up to provide independant financial guidance on payday loan and company loan with his informative articles.
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