What is a loan?
If you looking to make a small to medium sized purchase ranging from say £100 to £25,000 then loans can be an excellent source of credit.
In simple form a loan is where you borrow money and you agree to pay it back at an agreed rate of interest over a period of say six months to ten years. The Interest rate on your loan is fixed at the outset, so you know exactly how much you are paying back each month. This is a big advantage for most people because it can help with the budgeting of your family finances.
In the past, people tended to go to their own bank for a loan. But in recent years, competition between lenders means that it is possible to go to a far wider variety of sources for a loan, thus bringing down the overall cost.
There are two main types of loan:
This means that the loan is not tied to any item, such as your home. If you do not pay it off, you may face a poor credit rating in future, but you will not put your property in jeopardy. Of course, this means unsecured loans are more expensive, since the lender is taking more of a risk that it will not get its money back.
As the name implies, a secured loan is usually tied to your home. If you do not repay the loan, you could face eviction. This makes secured loan rates cheaper, in many cases, than unsecured ones.
Please note that unsecured loans and second charge secured loans are not regulated by the Financial Services Authority.
Loans are like mortgages in the sense that, at first, you are mostly paying back interest and only further down the line are greater amounts of your capital paid off.
But there is one feature of most loans that is different to mortgages: interest is set at the outset. Also, this means that if you repay the capital you owe ahead of time, you do not avoid paying any future interest as a result: you are still required to pay back some of the outstanding interest too.
This can sometimes prove to be unexpectedly expensive. Not all loan providers operate in this way, so it makes sense to check.
The other thing to consider is that, unlike other types of credit, for example credit cards, you are required to keep paying a loan off regardless of your financial circumstances.
Frequently asked questions.
· Is it better to re-mortgage to raise capital or is a secured loan more suitable?
· Ok, so what are the interest rates?
· What would my monthly payment be each month?
· I can easily afford that payment now but what if for example I was made redundant, how do I protect myself?
Above are just a few questions and you will probably have many more? If you decide that a loan is what you need then in most cases everything is done over the phone and by post.
What we need to know to be able to assess your suitability for a loan.
1. How much would you like to borrow?
2. Over what length of time would you like to borrow?
3. Do you have a history of adverse credit or have you ever been refused credit.
4. Property status (i.e. are you renting or a homeowner)
5. Estimated Property Value.
6. Outstanding Mortgage Amount.
7. Value of any other loans that may be secured against your home.
8. Reason for the loan.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.