6 Hidden Fees and Charges for Borrowers to Avoid

Written by Karen Bryan

£10 and £20 fan close up 500Borrowing money is always expensive. Some loan companies are a lot more competitive than others and it’s always worthwhile being aware of some of the perils of borrowing. Here are six pitfalls that you can avoid.

1. Always check for hidden fees

When looking for a short-term loan, make sure that you have factored all interest rates and fees into your budget. Many customers have been caught unaware by not fully understanding the contract that they are entering into. If a loan company website isn’t transparent, move on to another. Ask if there are any additional costs on top of the loan repayment sum and interest rate charges; some hidden fees may cost you more than the original loan itself.

2. Representative APR

You will see that many companies advertise a representative APR as the rate of interest that you may be charged on your loan. This figure isn’t set in stone and you may well find that you are being charged a much higher interest rate on your debt. According to the website Moneyfacts.co.uk, ‘a representative APR is an advertised APR that a minimum percentage of customers (who are accepted) will pay… this minimum percent is 51%.’ Most applicants will pay a considerably higher rate of interest.

3. Interest rates differ on the amount you borrow

You should also be aware that the advertised rate of interest might have absolutely no bearing on the sum, which you wish to borrow. Always do your sums and don’t be seduced by tempting advertised interest rates. There is a world of difference between loan companies and it’s a good idea to click here to have a look at comparative costs.

4. Fees for payday lenders

Despite new regulations enforced by the Financial Conduct Authority (FCA) on payday lenders, these companies are still an expensive option. If you have a poor credit rating these companies won’t automatically accept you for a loan, and you still will be subject to fees as well as high interest rates on your loan repayments. According to The Daily Mail fees will be capped, though you will still have to pay something if you don’t repay your loan on time, and if you borrow ‘£100 but struggle to repay the debt … you’ll never repay more than £200 including fees and interest charges.’

5. Watch out for brokers

Credit brokers aren’t the same as loan companies. The FCA is clamping down on brokers as it saw ‘evidence of fees being taken by credit brokers without informed consent and under hidden and misleading terms and conditions.’ Brokers have to state their role prominently on all advertising, so look out for this when choosing a loan option.

6. Be aware of overdraft charges

It’s not just loan companies who inflict charges on their customers. Banks have recently had to make their terms and conditions more transparent as a result of complaints made by the public to the Competition and Markets Authority. At one stage a payment that bounced could cost the customer up to £40, this has now been reduced to £10, but it’s important that all bank customers challenge their banks if they feel that they have been overcharged. No one wants to give their money away, least of all to their bank.