Interest is added to almost all debts, and extra charges are added to many debts if you don’t pay on time.
Interest can be charged at the same amount or it may be ‘variable’ and change over time. However, your creditors can’t increase the rate of interest because you’ve missed payments.
Interest on loans can be added all at once at the start of the loan. Or a percentage may be added at intervals while you’re paying off the loan. Interest on credit cards or overdrafts is normally added monthly.
Extra charges may be added if you miss payments or you’re late paying, but your creditor can only add charges if they’re explained in your credit agreement. These charges must be fair and based on actual costs.
For example, it wouldn’t be fair to charge you £100 for a letter, even if this was included in your credit agreement, because this is a lot more than the actual cost of writing and posting a letter.
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