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Are you the kind of person that takes out a loan and then forgets to record when it ends?
Do you put a grocery shop on the credit card to build up your credit score, but then forget to pay it off when you get home? Do you lose track of bill payment dates?
Not paying on time what you owe isn’t just stressful. It also costs more, in fees and interest plus other unexpected costs.
Far from improving your credit rating, you could be doing damage to it.
What are the extra costs when you don’t pay on time?
Loans, including short term loans and online payday loans, have a deadline for payment. So not paying on time can open you up to extra fees on top of the interest payments. Usually, there is an immediate late payment fee of up to £20. On top of this, interest will be added to your balance for the time that you’re not able to pay.
If you are taking out a loan, using a trustworthy and regulated loan provider will offer you protection. Even in the event that you can’t repay your debt straight away.
Are there any other unexpected ways that costs increase?
Remember that interest rates won’t necessarily stay the same. Lenders can and do increase interest rates, so what you’re expecting to pay might have changed by the time you pay off your debt.
Also bear in mind that paying late reduces your credit score, which impacts future loan and credit card quotes. If your credit score is lower, you’ll get higher interest rates on any future debt that you apply for. Which means that your late payment has long-term impacts if you plan to take out further credit.
How can you pay on time to reduce your costs?
Where possible, sign up to pay your bills by Direct Debit. This means that money can be taken automatically. You don’t have to worry about your payment dates, or remember to pay your bills on time.
Aim to pay off your credit card as soon as you get home, after using it for your shopping. You can also protect yourself from forgetting to pay by putting weekly reminders on your phone or calendar.
Many loan companies (and some credit card companies) will set up a Continuous Payment Authority. This works like a Direct Debit, but offers more freedom for your creditor, who can take any amount of money on any date of their choosing. For those reasons, it’s especially important to regularly check your bank statement. And to make sure that all payments that are taken are as expected. Alaso that you’re not paying too much or too often.
It’s also important to check your own bank’s policies on payments and charges. If a loan provider attempts to take a payment and you don’t have the money to cover it, you might also incur charges from your bank.
Your own bank can remove a Continuous Payment Authority (CPA) on your request.