Don't be driven mad by hidden loan charges; thereaders' champion.
WHEN Anne McLaughlan from Perth bought a used car, she was so worried about its condition, she admits she may have been remiss in looking at the loan offer.
She was borrowing pounds 5000 and putting down a pounds 1000 deposit to secure the second-hand car. All she remembers from the salesman's pitch was the figure of 3.99 per cent per annum.
She said: "I knew this was a good rate, so I had no hesitation in booking the deal. But somehow or other, the rate seems to have crept up to 9.6 per cent and I can't work out why."
The first part of the answer is that various one-off charges have been added to Anne's loan.
There's an acceptance fee of pounds 130, then there's a fee at the end of the loan, called an option to purchase fee, of pounds 50 (even although Anne had already purchased the car).
If Anne had paid the loan back within a year, the rate would indeed have been close to 3.99 per cent. But as she's stretched the loan over a four-year period, the interest rate has also been stretched. Add the one-off charges to the interest charge and Anne ends up paying pounds 5979.84 - equivalent to 9.6 per cent.
There's really no point in looking at the lower rate when considering a deal - ask for the APR from the outset and ask if the rate is fixed. Just like mortgages, some deals have interest rates which change.
While you may be able to afford repayments today, there's no guarantee you'll be able to pay them if interest rates double or treble.
Anne has gone back to her car dealer to ask about the option to purchase fee and she's lucky there are no other mysterious items that have been slipped into the agreement at this stage.
Some lenders insert Payment Protection Insurance with the result that borrowers end up paying for insurance they don't want (and might never have been able to claim on).
To make matters worse, the lenders calculate the value of all the insurance premiums, bundle them into a loan and lend that total amount to the borrower - plus interest.
The mis-selling of this kind of insurance has turned out to be a massive scandal because very few of those who took out the policies were able to make successful claims.
The official estimate of excess profits earned by the lenders is a staggering pounds 1.4billion, so check your loan agreement.
You may have been under the impression you were obliged to take PPI when you took out your loan but this was never the case. If you were told you had to have it, or were put under pressure by the sales people, you might have a case for a refund.
I suggested Anne also takes a look at her right to pay off the loan early, or to pay more than her agreed monthly payment. Being forced to keep the loan for four years when she has the cash available would mean she'd be paying interest for nothing. It's also important to look at any penalties for late payment. Anne's lender warned her that they'd charge pounds 5 for every letter they sent chasing payment and pounds 10 for every unpaid direct debit or cheque.
Three days after Anne signed up for the loan, she also started to get some very odd messages on her mobile, addressed to 'Melanie'. They said: "We can sort out a loan for you - no questions asked," and "Get in touch with us, we'll lend you money with no credit checks." In total,she received five such texts.
Anne remembered there had been a privacy clause in the loan contract. But it stated she had to write to the firm to be removed from their marketing list, so she hadn't bothered.
I'm not sure if she would have been removed from their list even if she had written to the lender. I suspect the texts were the result of the broker who organised Anne's loan, selling her details on.
If any disgruntled borrowers were to complain about a breach of confidentiality and unwanted sales calls, the guilty companies could simply claim to have made a genuine mistake in writing down the number.
As regular readers know, I suspect the entire Data Protection Act is an artifice with no useful purpose. Put up a barrier and clever and greedy firms will simply swerve around it.
Find out the rules for taking out a safe loan from a reputable lender at the website of financial watchdog, the FSA on www.fsa.gov.uk
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|Publication:||Daily Record (Glasgow, Scotland)|
|Date:||Aug 20, 2009|
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