When you purchase an item, be it a car, computer, jewellery or what ever, and you decide to take a loan to help you purchase your item, have you actually sat down and worked out exactly how much it is going to cost you? For example, if you were to buy a car that cost £12,000.00 and you had a £2,000.00 deposit and the repayments on the remaining £10,000.00 were £225.34 per month over sixty months, that car is going to cost you £15520.40, example;

• cost of car =12,000
• less 2,000 deposit = 10,000 on finance
• 225.34 per month x 60 months = 13,520.40
• admin fee = 300.00
• cost of loan = £3820.40
• total = 3820.40+2000+10.000= 15,820.40

the admin fee that is usually payable on the first and last payments could be around £150.00 each time, although this would vary depending on your lender, you would be paying £15820.40 for that car, as you can see a whopping £3820.40 is interest that goes straight in your lenders profits. Most people will pay the loan back by the agreed amount and over the full term and would not even think about paying any extra, remember this, the repayment amount that is in the agreement is the minimum amount that you have agreed to pay, if you could afford to, you could pay, in this example, an extra £50.00 pounds a month to your lender and this would reduce the amount of interest that you would pay dramatically, if you worked it out an extra £50.00 per month on the example above would pay an extra £2400.00 on to your loan repayments after 48 months and by this time you would have repaid 13,216.32 and this could finish the loan as the lender would reduce the amount of interest that you would have to pay, and not only have you reduced the amount of interest you have also reduced the term of the loan from sixty months down to forty eight months, this will look good on your credit score and you will have a car that is paid for in full a year earlier than expected and this could be a better deposit on your next one, of course the above is only an example and the amounts quoted would vary depending on your lender but you can get the idea that if you pay some extra on your loan each month the less it will cost you. If you have your loan repayments on direct debit you do not need to interfere with this, all that you need to do to make an extra payment is to find out your lenders bank details and this should be quite easy to do as you would have had some paper work sent to you shortly after taking out the loan and you should be able to find these details out from that, if not you can always contact your lender and ask them to supply these details, once you have them you just set up a standing order for the amount that you want to pay and the frequency with your bank, this is very easy to do if you have internet or telephone banking, and the extra payment is sent with out you having to remember to do it. Your lender is obliged to send you a statement at least once a year but you can ask for one at anytime and you will see you loan going down overtime. You could apply this on any loan that you have, if you have one that your are paying now sit down with a calculator and try to work out how much is left to pay and how long it will take you to pay off and see if you can pay any extra amounts to finish the loan quicker and n ext time that you are going to buy an item on hire purchase or take a loan out remember to take a calculator with you so that you can work out how much it is going to cost you.

Simon
16/Jan/12

Source: http://simon-b.org/how-much-does-it-actually-cost-you.php

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