First of all, it’s very important to be aware of the various banking products available on the market. It’s safe to say that these products vary vastly from one to the next, featuring different fees, interest rates, advantages, which essentially provide exposure to different types of risk.

It’s like buying a car – they’re all different, you just really need to know what you’re after. Same with banking products, they all serve different purposes, so it’s important to keep the three big Rs in mind.

Firstly, you need to RESEARCH the market thoroughly. Be aware of what products are available, and who is offering them.

Secondly, REQUEST all the details about the service or product so that you can easily compare between offers of different providers. Don’t be shy to ask silly questions – no questions are really silly and never assume anything.

Thirdly READ the terms and conditions and other relevant documentation super carefully. Ignorance of the law is not an excuse, and the same applies here – before signing on the dotted line, make sure you read the fine text and that you have understood what you’re going in for.

OK, so let’s say, there’s this amazing converted farmhouse in Siġġiewi that we absolutely fell in love with. It has a large living space, an Italian kitchen, and a large yard, where Bettina the dachshund will absolutely have a ball! We pretty much set our hearts on it, so we need to go to the Bank for a loan. Which questions should I ask to make sure that I’m getting the right loan product for me?

As the saying goes, the devil is in the detail. And here are some important details to look out for. Top of the list should be asking about the Interest Rates.

A fixed interest rate will ensure that you will pay a specified repayment amount for a pre- determined time. If you opt for a variable interest rate, your loan repayments are expected to rise and fall throughout the term of the loan depending on economic conditions. If you opt for a variable rate, keep in mind interest rate changes over the duration of your loan.

Also ask about the duration of the loan. This can affect its total cost. A shorter loan duration means fewer payments and less payable interest. Is there the possibility to repay the loan earlier than agreed, and if so, will this incur a fee?

At this point, you must also consider what effects there will be on future disposable income. That’s because when you take out a loan, part of your future income is committed to the repayment of the loan, so this will affect how much money you will have left for partying, and buying useless junk online!

And what happens if you are unable to meet your payment obligations? If the loan is secured, the bank may use your assets as collateral or as guarantee. That means that if you do not repay the loan, the bank may decide to seize this collateral.

If you apply for an unsecured loan, the granting of such facility will be based on your ability to make the monthly repayments, your track record with the bank, and any other good record of repaying previous loans with any other bank. Naturally a bank loan is not something you enter lightly, and that is why the appropriate research is always needed.

…and that brings us to the fun subject of APRs and APRCs. Why is it important to understand and compare the total cost of the loan?

If you are looking for an unsecured loan, you may come across the term APR. This stands for Annual Percentage Rate. APRC stands for Annual Percentage Rate of Charge and is usually linked to secured loans such as mortgages.

APR and APRC are expressed as a percentage of the amount of the loan granted and, usually, the lower they are, the better the deal for the borrower. Knowing what the APR or APRC is can help you compare loans and ultimately allows you to choose  the better deal.

For example, let’s imagine Bank A offered you a loan with 6.5% interest rate while Bank B offered you a loan at a lower rate of 6%. At face value, the first option appears to be less advantageous. However, A’s additional costs (mainly the annual fee) are far lower than those applied for B. In the end the total cost of borrowing from A is lower than for B, making it a sweeter deal.

Detail! Look out for it!

If you would like to learn more about loans, be it home or a personal one to buy a car, for instance, have a look at the MFSA’s consumer hub on their website.

So about that converted farmhouse in Siġġiewi… when’s the house warming?