Find out more about the real cost of consolidating your debt either with an unsecured or secured loan.

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• What does an unsecured loan cost
• What about a secured loan?

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What does an Unsecured Loan cost?

Normally there are no set up fees when you take out an unsecured loan from a bank or building society. The real cost of the loan is the interest that the loan provider will charge.

It can often be quite confusing to understand loan interest rates. Therefore the key to understanding the cost of an unsecured loan is to work out how much you will actually have to pay back in money terms.

The calculation is actually very simple. There is no need to worry about interest rates and APRs. You just need to multiply the monthly payment by the number of repayments. You can then compare the amount you borrowed with the amount you will repay and clearly see how much extra you will be charged.

For example, if you borrow £10,000 with monthly payments of £200 for 5 years (60 months) the total you will have to repay is £12,000 (250 x 60 = £15,000). The cost of the loan is £2000.

How much does a Secured Loan cost?

Normally there will be a set up fee when taking out either a mortgage or secured loan. However very often you will not notice these fees as they will be added to the loan itself. It is important that you understand what set up fees the lender is proposing so that you understand how these will be paid.

In the same way as an unsecured loan, the majority of the cost of taking a secured loan will be the interest payments. Remember, many secured loans are paid over 10 years (120 months) and many mortgages over 20-25 years. This means that although interest rates are likely to be lower than those of unsecured loans, the effect of compound interest (interest added to interest) will make the loan relatively expensive over the longer term.

Secured lenders have come under increased pressure in recent years to be transparent about how much their loans cost. If you are considering taking out a mortgage or secured loan, you should ensure you ask the lender for a written statement of how much you will repay if you continue to pay the loan over the full term.