In our last article, we offered some advice for those looking for credit. However, we did not get to cover all the bases, so here is a follow up piece that offers more tips when borrowing.
Tips When Borrowing – Payment Protection?
There is a phrase – in the form of PPI – that has been in the news rather a lot in recent years! The mis-selling of the product by various financial institutions has been a national scandal, and many thousands have recouped often thousands of pounds from banks and lenders for deception. However, this does not mean the product itself is to be avoided. It is not inherently evil. Payment protection is a valid product, when sold properly and without deception or pressure. It is an individual choice to decide whether you want to pay a few pounds extra each month to protect your debts should you ever need to. Should you ever run into financial difficulties and struggle to make payments. That is a personal choice, but naturally by taking out protection you increase the repayable amount on the debt.
Payment Holidays
These too have been in the news recently due to financial packages offered by companies in the UK during the pandemic. They were necessary as millions lost reliable income. Many of whom are still struggling to get back to normality as i type. These should be approached with caution though. They sound brilliant, and have been a useful tool for those that simply do not have funds available to pay off debt. That could be a mortgage, credit card or overdraft. But what everyone was not aware of was the fact that the holiday does not freeze time on debt. During the payment holiday, interest continues to accrue. So at the end of the period, the debt has increased. Thus, only use such a facility if you simply cannot make payments and have no other option.
Tips When Borrowing – Variable Interest Rates
Notably found on mortgages, these are a risk that could make or lose you money. Thus do your research if you wish to move away from fixed interest rates, which allow stability and a payment schedule you can plan around.
Tips When Borrowing – Try To Cut Debt Each Month
Easier said than done, but where possible, always set a goal of ending the month with less debt than you started it with. Many advise you try and reduce it by 10% each month, though in theory this would mean debt never reaching zero, so you would step up the percentage as the debt lowered and becomes more manageable. A better way to phrase it would be to pay off 10% of debt each month, not lower it by that percentage. They are two very different things.
Overdrafts – Caution
The rules in the UK for overdrafts have changed recently, so should be approached with caution. The FCA has imposed these changes due to variations in overdraft terms with banks and building societies. However, it think they have made matters worse. They certainly have for my account! By forcing the end of fees, lenders are moving to a set rate of interest for overdrafts, but for most that is just short of a huge 40%. so with that in mind, our advice is simple. Avoid overdrafts if you can. Even authorised ones will cost you a lot, and unauthorised ones will attract even more costs.
Responsible Lending
We are not ones to blow our own trumpet, but if you deal with Moolr you can do so safe in the knowledge you deal with a reputable company. And that is the key to responsible lending. Choose a company you can trust. Perhaps use word of mouth or recommendations from friends or family. And always ensure the company is accredited by the Financial Conduct Authority.
