Personal Loan Fact Sheet

Personal loan fact sheet
Types of​ loans
There are two main types of​ personal loans: secured and unsecured .​
Unsecured loans are not tied to​ any of​ your assets,​ but secured loans are - usually to​ your property,​ which is​ why they are often called homeowner loans .​
If you​ default on​ a​ secured loan,​ your lender can force you​ to​ sell the​ asset to​ pay off your debt .​
Car loans are also secured loans,​ with the​ lender using the​ vehicle you​ are buying as​ security for the​ loan.
Homeowner loans are tied to​ a​ property .​
Photograph: Frank Baron Most lenders offer unsecured loans of​ between £5,​000 and £25,​000,​ although some cap borrowing at​ £15,​000 .​
Smaller loans are available if​ you​ shop around,​ but if​ your borrowing requirement runs into hundreds of​ pounds rather than thousands there may be better ways to​ borrow the​ money.
If you​ want to​ borrow more than £25,​000,​ you​ will need a​ secured loan .​
You will also need enough equity in​ your property to​ secure the​ loan.
Interest rates
The APR (annual percentage rate) on​ a​ loan is​ the​ amount you​ will pay in​ interest each year .​
Most adverts for loans tend to​ quote a​ typical APR; you​ will not necessarily get the​ same rate of​ interest when you​ apply.
Unless you​ choose a​ lender with a​ one-size-fits-all interest rate,​ factors including how much you​ want to​ borrow,​ how long you​ want to​ borrow it​ for and your personal and financial circumstances will all have an​ influence on​ how much you​ pay.
A bank has to​ have offered its typical APR (or a​ better rate) to​ at​ least 66% of​ potential customers.
Interest rates can be fixed or​ variable,​ and it​ is​ important to​ know which you​ are signing up for .​
a​ fixed rate will remain the​ same for the​ term of​ the​ loan,​ which means your monthly repayments will remain the​ same.
A variable rate will be subject to​ change,​ usually in​ line with the​ Bank of​ England base rate .​
While this is​ good news when rates are falling,​ it​ can be worrying if​ rates go up and you​ need to​ find more money than expected to​ make your repayments.
Repaying your loan
Most loans are repaid in​ monthly instalments & usually by direct debit - over a​ period agreed before you​ get the​ money .​
The lender will tell you​ how much you​ need to​ pay each month when it​ agrees the​ loan.
The repayment period is​ usually fixed and you​ will have to​ pay a​ redemption penalty - for example,​ two months’ interest - if​ you​ want to​ pay it​ off sooner .​
The longer the​ repayment period,​ the​ more interest you​ will be paying,​ so go for the​ shortest you​ can manage.
Flexible loans,​ which let you​ borrow and pay back at​ will,​ are becoming more common,​ but the​ interest rate charged is​ often significantly higher.
If you​ miss a​ payment the​ lender will record the​ default on​ your credit file .​
Any new lender may not be put off by one or​ two missed payments,​ but if​ you​ have missed several you​ may struggle to​ get credit elsewhere.
Where to​ get a​ loan
The list of​ organisations offering loans is​ long and ranges from high street banks,​ to​ those that operate only on​ the​ internet or​ telephone,​ to​ building societies,​ credit unions,​ specialist loan companies and even doorstep lenders.
Typically,​ cheaper deals are offered by the​ specialists and internet banks than are available on​ the​ high street,​ but this is​ not always the​ case so you​ should shop around,​ either online or​ by contacting lenders to​ get quotes.
Some Doorstep loans have interest rates as​ high as​ 900% .​
Photograph: Garry Weaser Possibly the​ most expensive form of​ credit is​ offered by doorstep lenders .​
Unlike mainstream lenders,​ they will often offer sums of​ less than £50 - typically used to​ cover unexpected purchases - and collect payments weekly .​
However,​ APRs can be as​ high as​ 900% so borrowers who have a​ choice will tend to​ avoid them.
Credit unions are an​ alternative to​ mainstream lenders and can be an​ attractive option for some borrowers because they cannot charge more than 2% a​ month on​ the​ reducing balance of​ the​ loan (an APR of​ 26.8%),​ and most charge just 1% a​ month (12.7% APR).
Most credit unions offer unsecured loans for up to​ five years and secured loans for up to​ 10 years.
Getting into difficulty
Sometimes things go wrong and it​ is​ difficult to​ meet your monthly repayments .​
If this happens to​ you,​ do not ignore letters arriving through your front door.
The best course of​ action is​ to​ get in​ touch with your lender immediately .​
Banks and building societies are often willing to​ help and might offer to​ freeze the​ loan temporarily or​ extend the​ repayment period.
Their ultimate aim is​ to​ recoup their money,​ but it​ is​ usually more advantageous,​ including cheaper,​ for them to​ reschedule your repayments than to​ take action against you.
It is​ particularly important to​ be upfront with your lender if​ you​ have a​ loan secured on​ your house or​ another asset,​ because if​ things go wrong you​ may have to​ sell up to​ pay back the​ loan.
Personal Loan Fact Sheet Personal Loan Fact Sheet Reviewed by Henda Yesti on August 10, 2018 Rating: 5

No comments:

Powered by Blogger.