Low Cost Debt – Complete Guide & FAQs
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Interest is an unavoidable aspect of debt.
Understanding interest is the basic ABC of taking a debt. You need to have a proper understanding of the fees you’re paying with a loan.
I have compiled this article which included everything you need to know about low-cost loans.
Let’s dive right in!
Cost Of Debt
There’s a cost attached with everything. No one will be willing to give up money just for the sake of it. There are relevant costs attached with everything. This is based on a financial concept of the value of a future cash flow.
If you let go of a cash flow today, you let go of all the investment opportunities that come with it.
Money that is in your hands today is worth more than money that comes tomorrow. Debt collectors use this concept on the basis of which they charge an interest rate on their debt.
Debt recovery is a risky process. You never know if someone is going to default. There’s always a chance that you won’t get paid back. This is why creditors look for a reliable debtor only when it comes to giving credit. There are relevant payment charges attached as well.
Debt is a big business in the UK. People who have a lot of money offer services which are authorised and regulated by the Financial Conduct Authority. These services conduct business on the basis of the cost attached with debts.
When giving out debts, the additional amount you have to pay in excess of your debt is known as the interest and it is one of the costs of debt. Other costs include premiums for the services from which you take your debts.
People who conduct business on debts also have ties with relevant debt collection agencies as well. A debt recovery agency is a business specializing in debt recovery.
There are several debt collectors registered in England that have a grip over payment legislation and specialize in collecting back debts from a debtor. These companies offer debt recovery services.
The UK s leading debt recovery service is the Direct Collection Bailiffs Limited. This company specializes in debt recovery and has the help of a lot of debt collectors who have only one thing on their mind: debt recovery.
This company is known to be very fast in the debt recovery process. You can check their website for more information. They apply certain debt recovery practices in order to pressurize the debtor into paying back his debts to the creditors.
An interest rate is a percentage of your total debt which you have to pay as a cost of the debt taken. Interest is extremely high in England and Wales. You should know this before even taking debts.
Interest is charged annually. This means that the percentage of the total debt owed is only due once a year. There is no way to avoid interest other than finding a creditor that doesn’t charge interest on the loan he’s given you.
In the UK, debt is very common. Business is conducted on the basis of debt and equity. This makes debtors and creditors very common as well. The UK has made significant efforts for both the parties by passing laws and approving programs to help the country run.
The government has helped debtors in paying back the money they owe as well as the creditors in the debt collection options. There is a court judgment passed if someone is defaulting on their debts.
The government also has a lot of programs to cater for the people having cash flow problems.
These programs are sometimes provided by third party companies that help in giving out low cost debts to people with financial problems.
However, the requirements for being a debtor of any such company are pretty strict, and they only offer their service to people with good credit scores.
There is also an interest rate provided by the state bank on government bonds. This interest rate is the lowest that a business will charge for giving out debt to you. It cannot get lower than this.
These are the costs directly attached with your debts. These usually accumulate on a yearly basis as a percentage of the total loan that you’ve taken. This interest is the fees attached with your loan.
You have to pay this interest no matter what. The debtor is also a contractor when he gets into a debt. Not paying any of the attached fees classifies as a breach of contract on behalf of the debtor, and subsequent court proceedings will take place to resolve the issue.
This is the fee that the creditor charges you for a late payment of your loan. These charges accumulate on a daily basis according to the amount of days that your payment has been late by.
Once your repayment is late, you have to pay the additional fees of the statutory interest as well otherwise your debt is not considered paid.
Statutory interest is negligible if your payment is late by a few days. This is why it is usually left out from the debt recovery process.
However, if the payment of your loan is late by a considerable amount of time, then the fees attached will be substantial and these will be accounted for in the debt collection process.
How Do You Calculate Cost Of Debt?
As we mentioned earlier, the cost of debt is expressed as a percentage of the total amount owed to the creditors.
The formula is
A= P( 1+ rt )
- P is the total amount you borrowed from the lender.
- R is the interest rate divided by 100.
- A is the amount that is to be paid.
- T is the number of time periods that have gone by
This rate can be adjusted to 30 days by dividing the rate by 12. If you want the daily interest you have to pay, divide this percentage by 365 to know how much you have to pay.
Low Cost Debt
Long term debt usually has low fees attached to it. Some types of low cost loans are:
A mortgage loan is a type of loan that you take against an immovable asset. The borrower takes the loan for the financing of an asset that he wants to buy. This asset is held in the lender’s name as long as the loan exists and is not paid off.
Once the loan is paid off, the property is transferred to the borrower of the loan. This is usually a long term loan and has a huge amount attached to it. This makes it necessary to attach a low cost to it.
These are loans taken by students to facilitate their experience at college. This loan is to be paid back later along with interest charges that accumulate over the life of the loan.
However, keep in mind that the money taken from a student loan can only be used to pay for college fees, books, boarding or other costs attached to your studies.
Make sure that you’re never in such a situation and always have money in the savings account to cover your living expenses.
There are different costs a debtor has to pay in order to pay off his dues.
It is best to reserve money for these payments as well and always keep these in mind when earning money.
For more debt advice, keep visiting our website to know more about all the options that are available to you.