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A beginner’s guide to loans and interest rates

Loans and interest rates aren’t the most fascinating of subjects but you do have to have a basic understanding of these matters if you are thinking of applying for a loan and need to calculate how much it will cost.

Log book loans

If you are thinking of applying for a logbook loan, even though the weekly repayments from companies, including carcashpoint.com, are small you must realise that interest payments will form part of the weekly repayment instalment. Whenever you borrow money, you will always have to repay that money as well as additional interest, and the interest will vary from company to company.

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What is interest percentage?

According to the financial website Money Saving Expert, the percentage interest is the percentage of the amount of money that you have borrowed and is added onto the loan repayment amount. You will always be aware of the interest rate so that you can work out if you can repay the loan. Banks, payday lenders and logbook loan companies all adjust their own interest rates, so even though the Bank of England is currently setting an interest rates of 0.5% this doesn’t mean that UK companies have to set the same rate.

Annual Percentage Rate (APR)

The Financial Conduct Authority, (FCA) states that ‘APR stands for Annual Percentage Rate and you can use this to compare the affordability of different credit and loan offers.’ Some people find that they face problems as a result of the language of the loan agreement. For example, the wording ‘representative APR means that 51% of accepted applicants may have to pay one amount, and 49% may be offered a different higher rate.’ The key is in the term ‘representative.’

Loans and arguments

You may have read about payday loans in the press recently. An article in The Daily Mail highlighted one company that claimed that its APR was 5,853% and used this information in a TV advertisement. The company claimed that the figure was irrelevant, whereas consumers found the matter confusing. Following the government’s cap on Payday lenders, companies who lend money can only charge a daily rate of 0.8% ‘of the amount borrowed’ according to the BBC.

The high cost of loans

Loans are expensive. Even if you have excellent credit you’re still going to have to pay interest rates on top of your loan, that’s how banks, credit card companies and any other company that offers a loan stays in business. If you do find yourself in a position where you have to borrow money, then do the sums and carry out some research.

Always ask about the interest rates charged; also, it’s a good idea to see if the loan company will charge you any fees, and if so how much? Ask about default fees, obviously, when you take out your loan, then you intend to repay it on time, but you should be aware that your affordable loan can become very expensive should you miss a repayment date.