Many of us have come to that point in our lives where we consider taking out a personal loan in order to fund or finance something; re-decorating the home, buying a car, sending the kids to college, or using a loan as a means for debt consolidation. It can be a bit of a daunting experience trying to find the right loan at the right price. This is why it is important to know the details involved in applying for, and repaying a consumer loan.
The two main types of consumer loans are secured and unsecured. A secured loan means that the loan is tied to your personal assets, such as your home or auto, and usually can go above £25,000.00 in lending if your assets will cover that. If you are not able to repay a secured loan (called defaulting), the lender can force you to sell that asset in order to repay the loan. An unsecured loan is not tied to any of your assets however, the amounts that you can borrow are sometimes limited and interest rates can be higher.
The APR (annual percentage rate) is the amount of interest you will be paying back with your loan for each year it is open. There are many lenders out there to choose from, so it is a good idea to do some homework and look for the best APR rates available. The APR will also depend on how much you need to borrow and for how long, as well as your current financial situation.
Interest rates can be either fixed or variable. With a fixed rate, the interest of the loan will remain the same throughout the life of that loan (forbrukslan). This also means that your monthly repayments will be the same, so no unexpected surprises. With a variable rate the percentage is subject to change depending on, and keeping in line with, the Bank of England's base rates. Many go for this option because, when the rates fall, they aren't stuck paying more. But if the rates go up, the monthly repayment goes up as well.
So many choices
Loans can be applied for at a range of lending organizations: high street banks, credit unions, building societies, specialist lending companies, internet or phone loan organizations, and doorstep lenders.
The more expensive of these loan facilities would probably be the doorstep lenders who offer lower sums and quite large APR's. This type of loan is generally best for those one off emergency situations where you just need a small sum to cover a bill until pay day. Some feel this is a last resort option if they cannot get a loan through other means.
Credit Unions come up as one of the better options because of their low APR's of around 26% a month. They usually offer unsecured loans for up to a 5 year period, and secured loans for up to 10 years. You can still find good offers throughout the other lending facilities out there though, so take the time to shop around.
Payback time
So, you've done your homework and have found a loan that is suitable for your needs. Let's focus on repayment for a moment, because this is often an area of trouble when borrowing. Keep in mind that the longer the repayment period, the more interest you will be paying over time. Try to go for the shortest time possible that won't leave you struggling each month. Many lenders also charge you what they call a redemption fee id you choose to pay off your loan earlier. However, there are lending facilities now that will allow you to pay back early with no penalty. These are called flexible loans.
When we take out that loan, we aren't generally thinking about future difficulties. But anything can happen to throw your situation off balance like the loss of a job, an illness, or a disaster. One of the absolute worst things you can do is ignore the situation or those letters arriving in the post. It really is much better to get in touch with your lender and tell them what is happening before it gets sent off to a collection agency on their behalf. Many banks and building societies are often more than willing to help with options like freezing the loan for a period of time, or extending the repayment period which can often take a bit of the pressure off until you get back on your feet.
The most important thing is to do your homework when shopping around for a good loan. Know your budget and know your financial limits.
The two main types of consumer loans are secured and unsecured. A secured loan means that the loan is tied to your personal assets, such as your home or auto, and usually can go above £25,000.00 in lending if your assets will cover that. If you are not able to repay a secured loan (called defaulting), the lender can force you to sell that asset in order to repay the loan. An unsecured loan is not tied to any of your assets however, the amounts that you can borrow are sometimes limited and interest rates can be higher.
The APR (annual percentage rate) is the amount of interest you will be paying back with your loan for each year it is open. There are many lenders out there to choose from, so it is a good idea to do some homework and look for the best APR rates available. The APR will also depend on how much you need to borrow and for how long, as well as your current financial situation.
Interest rates can be either fixed or variable. With a fixed rate, the interest of the loan will remain the same throughout the life of that loan (forbrukslan). This also means that your monthly repayments will be the same, so no unexpected surprises. With a variable rate the percentage is subject to change depending on, and keeping in line with, the Bank of England's base rates. Many go for this option because, when the rates fall, they aren't stuck paying more. But if the rates go up, the monthly repayment goes up as well.
So many choices
Loans can be applied for at a range of lending organizations: high street banks, credit unions, building societies, specialist lending companies, internet or phone loan organizations, and doorstep lenders.
The more expensive of these loan facilities would probably be the doorstep lenders who offer lower sums and quite large APR's. This type of loan is generally best for those one off emergency situations where you just need a small sum to cover a bill until pay day. Some feel this is a last resort option if they cannot get a loan through other means.
Credit Unions come up as one of the better options because of their low APR's of around 26% a month. They usually offer unsecured loans for up to a 5 year period, and secured loans for up to 10 years. You can still find good offers throughout the other lending facilities out there though, so take the time to shop around.
Payback time
So, you've done your homework and have found a loan that is suitable for your needs. Let's focus on repayment for a moment, because this is often an area of trouble when borrowing. Keep in mind that the longer the repayment period, the more interest you will be paying over time. Try to go for the shortest time possible that won't leave you struggling each month. Many lenders also charge you what they call a redemption fee id you choose to pay off your loan earlier. However, there are lending facilities now that will allow you to pay back early with no penalty. These are called flexible loans.
When we take out that loan, we aren't generally thinking about future difficulties. But anything can happen to throw your situation off balance like the loss of a job, an illness, or a disaster. One of the absolute worst things you can do is ignore the situation or those letters arriving in the post. It really is much better to get in touch with your lender and tell them what is happening before it gets sent off to a collection agency on their behalf. Many banks and building societies are often more than willing to help with options like freezing the loan for a period of time, or extending the repayment period which can often take a bit of the pressure off until you get back on your feet.
The most important thing is to do your homework when shopping around for a good loan. Know your budget and know your financial limits.