If you’re looking for a car or another big ticket item, you may need a loan to get over the line. The process for doing so can be overwhelming with the contracts often quite wordy and intimidating.

So, firstly, you need to understand the paperwork. Don’t be afraid to tell the lender that you want to spend time checking on the contract. This is your right and you do not need to sign anything at this point.

The contract should tell you the total amount you will repay, including admin fees, debt collection fees and all interest. The Credit Contract and Consumer Finance Act (CCCFA) limits how much lenders can charge in interest and fees on high-cost loans.

Sometimes car insurance is part of the loan contract. That could add another few thousand dollars. There may also be administration costs. So what was initially a loan for a $12,000 car, might turn out to be $17,000, and there’s interest to be paid on that amount.

Will your home, car or household items be used as security for the loan? If you don’t keep up the repayments, the lender may be allowed to repossess what is listed as security.

If you're on a low income, you may be eligible for a low-cost loan. See the Sorted website for a full list of microfinance lenders.

Microfinance providers (external link)— Sorted

Can you change your mind?

Yes. You must check the contract properly before signing. Some lenders will give you a week to make a decision, but for some you may have only a few days.

You can get the contract checked by a Community Law Centre for free, although there are time limits for each person. Citizens Advice Bureau (CAB) is also free. Make sure you read everything before you sign.

Buy now pay later

This is where you buy an item and pay for it over time. These schemes may not feel like loans but similar penalties apply if you miss payments.

Some schemes also have admin fees, payment processing fees, and other costs which will make the purchase cost more than if you bought it upfront. Read the contract carefully to see if there are extra fees.

Buy now pay later is not covered by the Credit Contracts and Consumer Finance Act. Find out more here.

Read more about loans here