Loan Term

KEEP your loan term short. When you take out a bank loan it’s up to you how long it lasts. The most common terms are three and five years, but many loans are set up to last longer. If you need to keep your monthly repayments to a minimum then a longer term loan will probably look good – repay £7,000 over three years then your monthly bills will be £226 at a decent 9 per cent interest, for example. Repay it over eight years and they fall to £102. But watch out for the total cost of your credit. That will go from £8,013 for the three year loan to £9,845 for the eight year deal. Do you really want to pay back so much? If at all possible experts recommend going for the shortest deal you can afford – look at the Loan Repayment Calculator at www.thisismoney.co.uk to see how different terms affect your monthly and total bills.

Council of Mortgage Lenders - Loan Costs

New measures have been proposed by the Council of Mortgage Lenders for cost comparing.

The dynamic annual rate is a measure of interest rate that contrasts with the current annual per cent rate mode that is the standard measure for loan comparisons and this must be disclosed to borrowers.

The dynamic annual rate is different from the APR as it is calculated for the period of time a loan can be kept taking into account payments and charges over this period.

Research believes this may help borrowers understand the charges of interest rates and would show the costs that come with different mortgage products. It provides a basis of ways mortgage lenders will be able to make consumer information as full and meaningful as is possible.