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Getting credit is usually much easier than dealing with your debt problem if you cannot afford to repay what you already owe. There are questions you should ask before you take on a loan or credit card agreement so that you fully understand the commitment you are making.
Do you really need to borrow? Is there another way? Perhaps it would be better to use savings or wait until you have the money to pay cash. You may be able to talk about getting a discount for paying in cash.
How much will the credit cost? Shop around for credit - compare lenders and Annual Percentage Rates (APRs) before you decide. Find out the Total Amount Payable (TAP), rather than just comparing APRs, because this is a better way of working out how much you will have to pay for credit. Remember, the longer you are repaying the loan, the more interest you have to pay. Where a “Typical APR” is advertised check what you will have to pay because your credit rating may change the interest rate the company will charge you.
Do you understand the details of the credit agreement you are signing? Once you have signed a credit agreement it is usually too late to change your mind. If there is anything you don’t understand, you should ask for it to be explained to you. If you are still not sure about it, ask if you can take the agreement away to read it carefully or to get more advice.
Is your home being used as security? Although secured loans may offer a lower APR than unsecured loans, your home will be at risk if you do not keep up repayments on the loan. Think about what would happen if you lost your job and could not repay the secured loan.
Will the interest rate stay the same? Interest rates can be fixed or variable. Fixed rates stay the same until you have repaid the loan. Variable rates rise and fall with interest rates that are set by the bank or building society.
Do you need Payment Protection Insurance (PPI)? PPI is often sold to you when you arrange your credit. If you take out a PPI policy make sure you understand what it will cost you. You should be told the cost of the PPI separately from the cost of the credit and you should be asked to sign for it separately. If you feel you need the PPI, you should shop around – you do not have to buy PPI from the company you are arranging your credit with, other companies may be able to offer you the same PPI cover at a better rate. If the company you are arranging your credit with insists that you buy PPI for you to get the loan – look for another lender.
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