With summer just a few short months away, you may be thinking about borrowing to spruce up your home or to take that well-deserved holiday! The Competition and Consumer Protection Commission (CCPC) has some helpful tips before you take the plunge:
1. Ask yourself 'do I really need to borrow?'
Often things that seem necessary really are not. Could you postpone the purchase until you have saved up the money to buy it? If it's for something recreational such as new sports equipment, you could save up the money to buy it, because it’s not essential - you may save up the money faster than you expect because you are motivated to make that purchase.
2. Save money by finding a loan with the lowest rate.
Use the interest rate - known as annual percentage rate (APR)-to compare loans. The interest offered by lenders can vary a lot, so look for a good deal. The lower the interest, the lower the cost of the loan, but make sure you are comparing loans over the same time period.
3. Compare the cost of credit.
This is the difference between the amount you borrow and the total amount that you have to pay back. The longer you take to pay back the loan, the higher the cost of credit, so try to take out your loan over the shortest possible length of time.
The loan cost comparison on the CCPC’s consumer website compares interest and repayments on loans from all the main lenders. Some banks may offer a lower interest rate for loans for specific purposes such as home improvements or education so make sure you do some research so you know all of your options. Check with your local Credit Union as well to see what they are offering.
4. Borrow for a reasonable length of time.
A loan for a holiday should ideally be paid back before you plan to go on holiday again, and a car loan shouldn’t last for longer than you will have the car.
Otherwise, you could end up borrowing for your next holiday or car before you have paid off the loan for the last one. Longer-term loans are more suitable for home improvements, where the benefits last longer.
5. See if a fixed or variable-rate loan suits you.
Personal loans are more flexible if your interest rate is variable. This is important because your circumstances can change during the loan term and you might want to pay your loan off earlier than planned or reduce repayments for a time if you need to and extend the term.
Fixed-rate loans are more restrictive if you want to extend the loan term or make more repayments to save on interest.
They do, however, give you the certainty that your repayments will stay the same over the loan term. With a fixed-rate loan, you may have to pay extra if you want to pay off your loan early.
6. Make sure you can afford the repayments, in addition to your other expenses.
Plan your budget carefully so you don’t overestimate how much you can afford to pay back each month.
Check out the budget planner on consumerhelp.ie - it can help you to figure out how repayments will affect your budget, and any changes you may need to make.
You can find out more on what to watch out before you borrow on the CCPC’s consumer website consumerhelp.ie.