For most individuals, dealing with hard financial decisions, trying to make ends meet by attempting to increase earnings, but this can be a real struggle. It seems that no matter how hard Kiwis work, now, there is no light at the end of the tunnel. Loan fees, bank charges and the difficulties associated with accessing credit in times of need are all contributing to making life tough for many people. Fees on an unauthorised bank overdrafts can cost 100’s of dollars each year.
The primary goal is to try to keep your account in the green and to know how to avoid hidden fees and charges. This is the only way to maintain a good credit history. Always have in mind that the struggle to pay the fees applied by the bank for going overdrawn causes a lot of stress and continued financial difficulty.
Taking out a loan today is quite simple, with very many companies offering loans at excellent rates and to more people. However, some of those deals that seem too good to be true have hidden charges that can raise the cost of the loan much higher than expected. If you know the dangers of such hidden costs, then you can only avoid them by getting a cheaper and fair loan.
More than just Annual percentage Rates (APR)
Keep in mind that the costs involved in the repayment of a loan are higher than those advertised in the APR. When shopping for a loan, take into consideration that there are some unclear charges that banks do not point out initially. The first step in the process of avoiding the exorbitant hidden loan fees is simple: do some research. Be sure that the lender you are considering is reputable, and do not hesitate to ask for references. If you are still wary of a financial institution, avoid them altogether. Settle for an option that suits your requirements and one that does not put you under financial pressure.
Most banks do not mention about the redemption fees when you are applying for the loan, but this is something you should know if you are planning to pay your loan early. When repaying your loan early, many banks will charge up to two month’s interest, for doing so. Such penalties are usually the same whether you pay the loan immediately or a month before completing the loan. However, some of the banks are either scraping off or reducing these penalties since most borrowers are aware of their implications. In case, you are planning to take a loan that you will repay early, then find out if the bank charges redemption fees.
Rule of 78s
Besides the redemption fees, rule of 78s should also be considered if you are to repay your loan early. Rule of 78s is quite complex, but banks barely talk about it. As we have mentioned earlier, you are bound to pay extra interest if you pay your loan early. This interest is typically calculated on a sliding scale. It is referred to as a sliding scale since it initially came from adding the interest of the first twelve numbers of a twelve-month loan together. This means that the earlier you pay your loan, the more the interest you are charged.
Banks often include the cost of loan protection unknowingly to borrowers. They may also contain the full cost of the loan protection cover in the quote or at the beginning; therefore, any penalties or interest is paid at a higher amount than the loan amount. It is important to enquire if the loan has protection or not. If it does, think about how much you would save without protection.
Protection is quite important if taking out a larger loan, but make sure you ask all the necessary questions before signing. Your current employer may be able to cover you for some of these protection clauses, or you can get a similar loan protection from other companies at a much lower rate than the primary lender.
Now that you’re aware of the hidden fees and charges when applying for a loan, you’ll be able to save some serious money the next time you apply.