With the Christmas season looming, ’tis the time of year to get in debt.
Half the British population spent more than their monthly wage packet on Christmas last year.
With that strain on the finances, its no wonder that many people will compare loans and look for the best deals ahead of time.
“Christmas is an expensive time of year and for most people borrowing is a fact of life,” Richard Duvall of online borrowing exchange Zopa told the Telegraph.
“The issue at this time of year is to be clever in how you borrow.
“Cards are easy but expensive and, given that most people spread the cost of repaying Christmas over a number of months, a low-cost loan without early repayment penalties fits the bill better than expensive short-term credit with lots of nasty catches.”
The market is full of decent homeowner loan deals offering around the 5.5 per cent mark, and to compare loans in search of the best rate can be baffling.
But beyond the best rate headlines, there are a number of things to look out for, mainly early repayment penalties and the costs of payment protection insurance (PPI).
PPI has been attracting attention for all the wrong reasons recently and disregarding it could be the shortest route to cancelling out the best rate you could find.
In principle, PPI will cover you against failing to make payments because of sickness, accidents or unemployment, but in practice can be grossly overpriced and mis-sold.
Some have estimated that a fifth of home owner loan providers’ income is drawn from expensive PPIs, with the costs pushing a typical £10,000 loan from a best rate of 7.9 per cent to a blistering 23.6 per cent.
The government forced a rule change earlier this year however, meaning that now borrowers should be able to see the best rate and any additional charges laid out in black and white on a homeowner loan, so long as you know what to look for.
The Office of Fair Trading has also recently received reports that rules requiring the advertised ‘typical APR’ to be offered to 70 per cent of applicants are being flouted, so be sure to enquire before banking on a home loan offer.
Borrowers who do not have flawless credit ratings may be offered a higher rate. Early repayment charges can also bump up a best rate and should be examined in full before accepting any deal.
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