Beware offers of credit

Loans and credit cards have become harder to come by since the recession, yet lenders can still target those stretched to the limit. If you're struggling, the offer of extra cash or a consolidation loan may sound tempting. But think carefully before you sign on the dotted line.

Where do I start?

It's easy to get confused by the small print on credit agreements, and often we're too embarrassed to admit we don't know how the maths works. Start by looking at both the APR and the time that the loan is spread over. The higher the APR, the more interest you will pay. You will also pay more for your loan the longer you spread it out. However, it is best to find out exactly what the loan is going to cost you in real cash terms. Ask the lender to spell it out or go to www.whatsthecost.com for breakdown of costs.

APR

The APR, or the annual percentage rate, tells you the yearly cost of a loan and helps you compare different deals on credit cards, personal loans and even mortgages. If you don't know what the APR will be for this credit, be sure to ask.

Length of loan

If you're spreading repayments over several years, rather than paying it back over a short period, it will cost you a lot more. Personal loans are often spread over between six months and 10 years - sometimes longer.

Monthly repayments

If you're happy with the APR, the length of loan and its total cost, can you manage the repayments? Look at how much of your take-home pay they will eat up. Think very hard about how it will affect your lifestyle.

Do you have other loans as well? Be very careful not to over stretch your finances. It's common to assume that you'll be earning more in a year's time, but don't rely on this, just go with what you can realistically afford now.

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Updated: 17/10/2011