How Good And Bad Financial Decisions Can Affect Your Pocket | Personal Finance Views

Wednesday, February 6, 2013

How Good And Bad Financial Decisions Can Affect Your Pocket

We all face those daunting decisions when dealing with finances, who should I turn to borrow cash? Who will give me the advice I need and how can I tell if I am getting the best deal for my needs? Well the first thing to understand is no matter what advice you seek or receive, only you can make the final scary choice. Here are some of the problems when looking to borrow money and the solutions.

Starting Big and Going Small

Probably the biggest thing that you will ever buy is a house (financially and physically). It can also be one of the most stressful events in your financial life. Prior to the credit crunch of 2008; banks, building societies and other specialised mortgage dealers were lending money with no regard to the true value of property or people’s ability to repay. This was one of the reasons for the financial crash and mortgage finance was difficult to obtain, although as of 2013 the UK market is improving. Therefore if you want to finance a house, extension or even a new boat the bank should be your first point of call. A good tip to remember when you apply for a mortgage, personal loan or payday loan, is that the lender looks at all your commitments, not just the one you are applying for.

Financial Decisions Can Affect Your Pocket

Therefore, you need to understand which lenders to approach for each of your financial needs. If you can approach your finances this way it is much easier to find a loan that is right for you.

Let us look at what you could call small financing of day-to-day activities.

Many financial experts warn consumers of credit lenders who charge high rates of interest or the A.P.R. (annual percentage rate). While at first glance the figures look very high, it is the term of the contract that is important not always the APR. Here are two very good examples of this confusion.

Examples of confusing APR

Say you had two forms of household lenders. There are so many companies that specializes in payday loans. They will lend you cash of up to £1000 for first time borrowers, if approved; the money can be in your bank account in 10 to 15 minutes. You can then begin purchasing those much-needed items as a cash sale or other payment method. However when you first go to the web site it shows you an APR of rather eye-popping 1734 per cent representative. But before you close down the page, let’s look beyond this with our new insight into APRs. The company specialises in payday loans, which means that if you borrow £200 for 28 days you only pay back £250. This is an annual rate of 326% but because your repayment is in 28 days (4 weeks) the APR figure has no complicated meaning, all you need to know is that you are borrowing £200 and paying back £250.

One of the other high street providers of credit is BrightHouse Ltd. This company not only sells you the goods (mobile phones, furniture and white goods) but supply the credit to buy them through their own finance company. Looking at their website this time, they have an APR of 29% representative on goods bought from one of their stores. You may be thinking this is a better deal than others however, let’s look at what this APR actually translates to in a sale. The cash price of say a mobile phone at BrightHouse is £545. Credit for 78 weeks (not 4 weeks like the previous payday loan) is just £12.99, including optional service cover. This comes to a less appealing £1013 with the APR at 29%, but not only are you paying back more money you are paying interest on the stores profit on your phone.

When applying for finance look beyond the headline APR, the terms of a financial deal is usually the most important factor.

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