Finances - steering clear of bad finance

Obtaining finances can be difficult especially in emergencies but certain loans should be avoided however tempting they seem at first.

09:30 20 December 2013

When you are faced with an emergency and in need of finances, many people will turn to whatever method comes their way first.

 

Unfortunately, that is just the type of situation that many lenders look for and take advantage of by getting you in over your head.

• Companies that offer to help you with your finances by giving you a loan with an astronomical interest rate. For example, payday loans can have interest rates as high as 5000+%.

 

The result of such a high yearly interest is being unable to get out from under the interest. Paying it back becomes unmanageable.

To try to avoid this altogether by first asking your employer for a payday advance or falling back on friends and family.

• Energy Deals - Standard energy tariffs, this is something that more than 70% of British households deal with and they are unfortunately unprotected from rate hikes. The rates are not regulated and people do not question that the tariffs are just part of the program. Standard energy deals are always affected.

Solution: Choose a fixed rate deal instead of a standard. This prevents these rate hikes and can save you considerably on your monthly finances. 

• Consider your mortgage. A smaller interest rate sounds like a great deal however, they can come with some serious fees that work against the benefits of the lower interest rate.

The solution: before signing on a new mortgage or a refinance, consider not just the interest rate but also the deposit percentage and the fees attached.

• Paying for what you already have – Bundled packages sound great but they may not actually be offering you any real value in terms of saving you on your monthly finances. For instance, current accounts that come with a good number of benefits, if you are ready to fork out something as a monthly fee.

Solution: check if there is any add-on package before getting into a new account.