The Costs of Borrowing

The costs of borrowing money lender hands1

In this climate, we all have to tighten our belt. Our incomes are reduced, while household expenses, taxes and healthcare costs are increasing. Loan repayments have fallen behind, there are extra bills to pay and nothing seems to balance anymore.

Borrowing money is something that most of us do, using everything from personal loans and credit cards to hire-purchase agreements. Many financial products are presented in an unclear manner, meaning we often buy products we do not fully understand, and only take the time to read the small print when something goes wrong.

Access to credit is not an option for many people, for various reasons. Many find it hard to get loans through banks or other lenders. Those under financial pressure are advised to take appropriate steps to avoid falling into the trap of moneylenders, whose interest rates can be as high as 187% APR (Annual Percentage Rate) and should be considered carefully before agreeing on them.
Often, a borrower will feel they have little choice, especially in a crisis, but if you’re considering borrowing money, you need to ask yourself certain questions:

• What am I borrowing for?
• Can I wait and save instead?
• What repayments can I afford?
• How long is my loan period?
• If interest rates rise, can I still afford the repayments?
• What risks am I taking if I cannot pay?

Have a good look at your budget. You need to have some excess money to be able to make repayments. If you can’t afford to save in the first place, how can you afford to also pay interest?

Money costs money; borrowing means you have to pay back the loan plus interest and can make your life miserable if you can’t meet your repayments.

A moneylender is someone who lends cash, usually at a much higher interest rate than Banks, Building Societies, Insurance Companies or Credit Unions.

Moneylenders are required to provide detailed lending agreements that show the total cost of credit and the rate of interest, plus any collection charges. An agent may call to your home every week to collect cash payments and may charge a collection fee. Customers must be given the option of paying at the moneylender’s business premises to avoid collection charges.

The moneylender must issue a repayment book, separate to the lending agreement, which sets out the details and shows the customer how much they have paid off and how much is left to be paid. The moneylender must also keep a record of the details of each lending agreement.

Moneylenders are not allowed to offer top-up loans or a second loan to pay off the first.

People need to be aware of the damage and level of criminality that comes with illegal moneylenders. MABS advise people to take appropriate steps to avoid falling into the moneylender’s trap.

Typically, they prey on the most vulnerable and disadvantaged by calling to their home for a friendly visit at certain times during the year, e.g. Christmas, communions, back to school time, or they may drop leaflets through the door.

They charge extortionate interest rates; excess of 300% is not unusual. These loans are informal and undocumented, and the borrower often lives in terror of the moneylender.

If you believe you have dealt with an illegal moneylender, you should contact the National Consumer Agency or your local Garda station. The Gardaí can take legal action against them and the NCA can give advice on whether the moneylender is trading illegally and how to proceed with your complaint.

If you experience difficulty in paying off a loan, contact your lender as soon as you can. If you cannot resolve the matter directly with your lender, you can get help by contacting the MABS Helpline on 0761072000, a free and confidential service for people with debt or money management problems.

MABS will:
• Help you deal with your debts and make out a budget.
• Examine your income to ensure you’re not missing entitlements.
• Contact your creditors on your behalf with offers of payment if you’re unable to do it yourself.
• Help you decide the best way to make payments.

MABS also advises people to be aware of the Exceptional Needs Assistance available from Community Welfare Officers and other Government-funded voluntary organisations such as St Vincent de Paul, who play an important role in providing advice and guidance to vulnerable people.

By Eric Hillis