Bank Loans and Credit Cards
How can I choose banking products or services that are in line with my needs?
Banks offer a wide variety of banking products with different features, fees, interest rates, and which essentially provide exposure to different types and levels of risk.
Different banking products and services often serve different purposes. So how do you decide which product, service and provider are best for you?
Irrespective of the banking product you would like to purchase, always remember to:
- RESEARCH the products available and the respective service providers offering them.
- REQUEST all the details of the service or product so that you can easily compare between offers of different providers.
- READ carefully the terms and conditions and other relevant documentation.
This will ensure that you find the product that best fits your need.
RESEARCH: Where can you find the products or services that best fit your needs?
Having the right information at hand ensures that you choose the right product to fit your personal financial situation and goals, helping you save time and avoid distress. Services offered by banks include deposit and savings accounts, loans, credit and debit cards. Find out more about the banking products and services available here.
Once you have decided what type of product you need, you can start shopping around to find the best rates and conditions for you. Before purchasing a banking product, make sure that the entity you are dealing with is authorised to offer such services by the MFSA or by another European regulatory Authority. A full list of credit institutions licensed and regulated by the MFSA can be viewed online on the Financial Services Register available on the Authority’s website.
REQUEST: Which questions should you ask to determine which product or service suits you best?
As the saying goes, the devil is in the details. When it comes to comparing the different offerings of various providers, what are the main things to keep in mind?
Before applying for a loan, consider/ask about:
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.
Duration of Loan
The duration of the loan 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?
Effect on Future Disposable Income
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 your other needs and wants.
Inability to Pay
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 guarantee, meaning that if you do not repay the loan, it will have the right to seize them. 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.
Before applying for a credit card, consider/ask about:
Need for a Credit Card
Before requesting a credit, you should carefully consider if this product fits your needs. You should not get a credit card if you don’t know how this commitment can affect your monthly budget and if you believe that you may overspend.
Credit Limit and Monthly Commitment
A credit limit is the maximum amount you can borrow on a credit card. Before applying for a credit card, make sure that you’ll be able to meet your monthly commitments. Repayments can be paid in their entirety on a pre-established day, or one can also pay back in fixed instalments. When possible, try to pay more than the minimum amount of your credit balance.
Interest Rates
What interest rates will you be charged when using the card? If you pay your credit card bill in full every month, you will not pay any interest fees. If not, you will have to pay interest. Know the rates in advance!
Fees
Some cards charge fees such as an annual fee or a late payment fee. Make sure you are aware of these fees before committing to a card.
Safe Usage
Familiarise yourself with the security features of your card and ask your provider what to do if your card gets lost or stolen. Banks usually provide 24-hour assistance where lost or stolen cards can be reported. Misuse of the card can affect your credit history.
APR vs APRC, and why it is important to understand and compare the total cost of the loan
If you are looking for an unsecured loan, such as a credit card, 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 personal loans
The following example might give you a better understanding of how it works:
Loan A is granted with 6.5% interest rate while a loan B is agreed at a lower rate of 6%.
At first, loan A appears to be more expensive than loan B. However, loan A’s additional costs (mainly the annual fee) are far lower than those applied for loan B.
In the end the total cost of borrowing for loan A is lower than for loan B.
READ: The Terms and Conditions
What information should the bank provide?
When it comes to personal loans, the creditor should provide the following information free of charge to consumers. This should be provided in good time before the credit agreement is concluded and contains at least the following information:
- Information on the lender and the credit intermediary (where applicable)
- Main features of the loan (amount and currency, duration, type of interest rate, etc.)
- Interest rate and other costs (APRC, with detail of costs to be paid on a one off-basis and costs to be paid regularly, and other costs as applicable)
- Frequency and number of payments (repayment frequency and number of payments)
- Amount of each instalment
- Information on early repayment
- Rights of the borrower and how to present complaints
What are my rights as a consumer? What can I do in case I receive an unsatisfactory service?
In case you are not satisfied with a banking product or service, you can submit a complaint to your service provider. Licensed banks and service providers should publish the Complaints Handling Policy on their websites. If you are not satisfied with the outcome of your complaint, you can appeal with the Office of the Arbiter for Financial Services.
Before signing a home loan agreement, you have the right to a reflection period of at least 7 days to compare the different offers, consider their terms and conditions, and make an informed decision.
In case you disagree with a transaction that has been charged on your statement, you have the right to challenge the payment and you should report it to your service provider at the earliest. Each service provider has its own procedures for the reporting of unrecognised transactions, so make sure you consult their website or contact them to obtain this information. If your credit card is stolen, you will not be liable for any unauthorised payment that takes place after you have informed your bank, or for an online payment if your payment service provider or bank does not provide a strong customer authentication procedure.
