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Costs of loans
Firms that act as loan agents outdo each other in the advertisements for their products. “Cheap cash loans”, “Cash-in-hand loans” – such catchphrases encourage us everywhere in town to take up a particular loan offer.
On enquiring about the details, client advisers inform us of the details of the loan costs mainly in the form of the interest rate.
In order best to evaluate whether cash loans are so cheap, it is necessary to take into consideration all costs together when taking out the loan, which we often forget when signing an agreement in a bank or other para-banking institution.
As an example, a loan is taken out on a bank account of £1000 for 12 months in one of the banks offering an “attractive” interest rate, nominally from 8% (everything depends on what kind of net income we are able to boast). Adding to this the commission (from 2%) and insurance (0.21% monthly rate), the interest rate for the loan effectively changes to the level of 27%. It is also necessary to add to this the bank’s commission on every loan payment (about £2) and also the fee for carrying out the transfer at the post office (£2.50) or the bank transfer (£0.50 to £1.50). The overall cost of such a loan in the end amounts to: interest plus commission plus insurance – about £270, bank charges (cost of the transfer at the post office or bank) – from £6 to £30.
Therefore the super-offer of loans, which advertise loans from as little as 8%, are no different from extortion, once the charges and interest are broken down, in order for the nominal interest rate not to exceed the statutory amount. Commission for insurance firms, banks and para-bank institutions, postal payments – all these costs weigh down the borrower, who may well be wondering where this difference came from between what was printed on the leaflet and what is demanded by the agreement.
This is why when travelling the paths of borrowing – before being tempted by, for example, last-minute offers, super-cheap cash loans – we need to ask about the details and calculate the rates ourselves. It is not difficult, but keep your eyes open.
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Firms that act as loan agents outdo each other in the advertisements for their products. “Cheap cash loans”, “Cash-in-hand loans” – such catchphrases encourage us everywhere in town to take up a particular loan offer.
On enquiring about the details, client advisers inform us of the details of the loan costs mainly in the form of the interest rate.
In order best to evaluate whether cash loans are so cheap, it is necessary to take into consideration all costs together when taking out the loan, which we often forget when signing an agreement in a bank or other para-banking institution.
As an example, a loan is taken out on a bank account of £1000 for 12 months in one of the banks offering an “attractive” interest rate, nominally from 8% (everything depends on what kind of net income we are able to boast). Adding to this the commission (from 2%) and insurance (0.21% monthly rate), the interest rate for the loan effectively changes to the level of 27%. It is also necessary to add to this the bank’s commission on every loan payment (about £2) and also the fee for carrying out the transfer at the post office (£2.50) or the bank transfer (£0.50 to £1.50). The overall cost of such a loan in the end amounts to: interest plus commission plus insurance – about £270, bank charges (cost of the transfer at the post office or bank) – from £6 to £30.
Therefore the super-offer of loans, which advertise loans from as little as 8%, are no different from extortion, once the charges and interest are broken down, in order for the nominal interest rate not to exceed the statutory amount. Commission for insurance firms, banks and para-bank institutions, postal payments – all these costs weigh down the borrower, who may well be wondering where this difference came from between what was printed on the leaflet and what is demanded by the agreement.
This is why when travelling the paths of borrowing – before being tempted by, for example, last-minute offers, super-cheap cash loans – we need to ask about the details and calculate the rates ourselves. It is not difficult, but keep your eyes open.
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