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Think before you borrow

Do you really need the loan?

Borrowing money is expensive.

Say you borrow £15,000 and pay it back at £169 a month for 180 months (ie 15 years)

By the end of that time you would have repaid £30,000.

In other words it's cost you twice as much as you borrowed.

Three in five people reportedly admit getting into debt for something they later wish they hadn't bought.

Consider loan alternatives

Loan alternatives

Borrow from your employer

Use your savings instead

Go without!

Do you really need the loan?

Borrowing from your employer.

It may be possible to get a loan from your employer. Large firms have set policies for this. Ask your personnel dept. If you work for a smaller firm, just ask the boss.

Employers will usually charge a much lower rate of interest. But taking out a loan from them may tie you down to the job more than you'd like.

If you leave you'll probably have to pay the loan back there and then - which might mean re borrowing at a higher rate than you'd bargained on.

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Use your savings instead?

If you really need the money it's considered a better idea to dip into your savings instead of taking out a loan.

This is because it'll cost you a lot less in the long run. If you take out a loan you can end up paying back double what you borrowed.

You're very unlikely to make as much money from your savings if you left them where they are.

OK so it might seem more comforting to have something saved up in case of emergencies. But, at the end of the day, you'll have more put aside by not having spent as much on the loan.

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Go without!

Just say no.

Consider whether you really do need that brand new car or whatever. Is it worth the inflated cost of borrowing? To read how much a loan can really cost you see you really need the loan?

Three in five people reportedly admit getting into debt for something they later wish they hadn't bought.

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Loan Insurance

Payment protection insurance

Most lenders offer loan insurance schemes to help you out in the event of ill health, unemployment etc. The terms of cover will vary greatly so check the small print.

Think of some eventualities that may happen to you and ask the lender whether their insurance would cover you.

Make a note of the date you called and who you spoke to (just in case they deny what you were told, which sadly seems an increasingly common practice).

Make sure you're not already covered for this through another insurance policy.

Some lenders will give you lower rates if you take out this type of insurance with them. But, added to the repayments, it's highly unlikely it'll be cheaper than not taking it out at all.

Shop around for loan insurance as you're bound to find something cheaper if it's not "bundled" with the loan.

On the whole these policies are seen as a waste of money. Usually the small print makes them irrelevant when you come to claim. "Heart attack? No Sir that's not one of the serious illnesses on our list. Didn't you read the terms? Oh the print was too small? Sorry..."

If you get into difficulties

Tell the lender

Use the voluntary agencies

Don't borrow more

Tell the lender

The first thing to do is contact your lender. DON'T HIDE YOUR HEAD IN THE SAND. The problem won't go away.

If you don't let the lender know what's going on they'll assume you're messing them about. Lenders are very well primed to deal with people who don't play it straight with them.

A good lender will be sympathetic and reasonable in coming to a new arrangement with you - as long as you're straight with them.

Do make sure your new arrangement is realistic as it won't be taken well if you have to go back to them again. But, if that's what you need to do, don't shy away

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Use the voluntary agencies

You'd also be well advised to contact one of the voluntary agencies who can be an excellent source of help such as your local Citizens Advice Bureau.

A good place to go is The National Debtline. They have a free telephone advice and support service and also produce a useful free self help guide. Tel 0808 808 4000.

Watch out for any firms marketing themselves to look as if they're non-profit, voluntary type agencies. There's lot of money to be made from arranging "consolidation loans" ie borrowing again to pay off your old debts, and some firms seem to be using this approach. (See below).

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Borrowing more to pay your debts: Beware.

Be careful of the many companies around who offer to consolidate all your debts into "one easy repayment". This is all the rage at the moment but these loans usually end up costing you a lot more than necessary.

Brokers make a lot of commission from them so be wary of getting talked into one until you've taken truly impartial advice ie from one of the voluntary agencies.

Incredibly, the majority of people who go for these loans end up even further in debt.

If you've got to the stage of even considering this type of loan, frankly, you need more than a quick fix. Do yourself and your loved ones a favour before it gets worse.

Contact one of the voluntary agencies who really do care and probably know more about loans than many of the so called professionals - before it's too late.

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All material UK Loans Guides and Information © Moneysorter Ltd 1999 - 2013 | Author: By Ed Parry