Loans and Lenders 

Free independent advice on finding the right loan

Most people at some point in their lives will need to borrow money, whether this takes the form of a secured loan or a personal loan we are almost all guaranteed to borrow money at some stage.

The need to borrow funds may arise from cash flow difficulties or from the desire to purchase major items such as a car or property. For most of us who wish to be home owners we have no choice but to borrow money in the form of a loan in order to purchase our homes in the first instance.

Borrowing money has never been easier. Loans seem to be on almost constant offer whether from a high street shop, from your bank or from the vast amount of mail shots that come through your door. Mail shots and advertisements for loan can initially appear to be very attractive offers but should always be approached with caution as loans are a minefield of clauses and interest rates which need careful consideration.

Giving in to the temptation to take these personal loans, because they are easy to apply for or because you are more or less guaranteed to be offered the loan, can result in financial hardship for the unwary and should be thoroughly researched before being entered into.

Loans can have slight higher interest rates and usually prove to be a more expensive route to take but if you chose the option of a secured loan you should be aware that your home could be at risk if you fail to make the repayments required of you.

If your financial difficulties are due to short-term cash flow problems there are likely to be far more appropriate options than either personal loans or secured loans. You could, for example, seek an overdraft facility from your bank. Most banks will now offer their customers temporary overdraft facilities. Whilst this facility is not cheap it can make far more financial sense for most people with short-term cash difficulties than entering into loan agreements.

Personal loan or secured loan? Look at all of your options

Before taking out either a personal loan or secured loan you should look carefully at ALL of your options.

First of all if your loan is for a purchase you wish to make you should consider whether you need to make the purchase now or whether you could delay your purchase for a few months until you have sufficient funds at your disposal.

The next point to consider is any savings you have. The interest earned on your savings will pale into insignificance next to the interest payments you will make on any loan you take out. Furthermore the interest on your savings is taxable. The comfort of having savings to fall back on in case of a financial emergency should not deter you using your funds wisely.

Only borrow an amount that is affordable to you. Ensuring that you have budgeted properly and can afford the repayments on a loan is essential. Over stretching your budget on a steep repayment schedule for your loan would certainly be ill advised. If you fail to meet the repayments on a secured loan your home could be at risk. Defaulting on a personal loan could also result in serious financial difficulty and affect your credit record.

Research your options carefully. Read the terms and conditions of any loan offer, paying special attention to:

• Interest rates
• Any additional charges
• Early redemption penalties
• Cost of compulsory insurance
• Total amount repayable

If you decide that you are going to take a loan the next step would be to decide on whether a personal loan or a secured loan would be the most appropriate option.

Most people who want to borrow money for a major purchase choose a personal loan. Nearly all banks and building societies offer this facility and it works as follows. You borrow an agreed sum and then make the fixed monthly payments over an agreed period.

Moneyfacts publishes a regular table of personal loan deals including details of the minimum and maximum advances available, interest rates payable and the length of personal loan terms.

Companies that provide both personal loans and secured loans include Abbey National, HSBC, Lloyds TSB, Nationwide Building Society and Barclays Bank.

Insurance

Personal loans are offered both with and without insurance. This type of loan insurance usually covers the loan payments if you are unable to work due to an accident, sickness or unemployment, for up to one year. It will also provide life cover for the outstanding balance of the loan. However these loan protection policies can be very expensive and in many cases carry such an array of clauses that they are almost impossible to claim against. You should take equal care when choosing an loan insurance protection policy as you do when choosing your loan.

If you have sufficient equity in your home, secured loans can be an attractive way of borrowing because the interest charges tend to be cheaper and more in line with mortgage rates than those for personal loans . However, most UK lenders will insist that you pay a fee for having your house valued. If you chose the option of a secured loan you must always bear in mind that your home could be at risk if you fail to maintain the agreed loan payments.

Annual Percentage Rates (interest)

It can be a difficult process to try and compare the costs of different types of loan products but the APR’s can help. The APR represents the total annual charge expressed as a percentage. This takes into account all charges involved in obtaining a personal loan including arrangement fees, any compulsory insurance or maintenance contracts that must be taken out. The amount and frequency of the loan repayments and the total length of the loan also need to be taken into account. Although the APR’s quoted will give you’re a good indication of which loan company is offering the best deal, different assumptions are made when calculating APR’s for different forms of credit. This may mean that some deals look more expensive than others even if they are not. However frightening the realisation of the true cost of your loan is it is essential that you establish the total amount repayable on any personal loan or secured loan, this figure should also assist in any comparisons.

Dos and Don'ts

Do – be cautious when choosing your loan. You should be very wary of mail shots, adverts in either local or national newspapers, or companies you have not heard before. The likelihood is that there will be much better deals on offer elsewhere as these types of loan lenders often have extremely high interest rates.

Do - make sure that you understand the procedures and costs for early repayments on either a secured loan or personal loan. Many loan lenders will charge you a minimum of two months interest as an early redemption penalty.

Do – make sure you look at all the options open to you. In some circumstances a secured loan or personal loan may not be the best option at all. If for example you are purchasing a car there are other types of ways of funding your purchase such as hire purchase, personal contract hire and personal contract purchase.

Do – remember that although secured loans UK can represent better value if you borrow funds against your house you are offering your home as security for the loan. If you fail to keep up your repayments on your loan your lender can repossess your home to sell it in order to recover the outstanding balance of your loan. A personal loan from a bank or building society is an unsecured loan, which means that your home is not at risk if you default on the loan repayments but failure to meet your repayment schedule will almost certainly affect your credit record.

Do – act quickly if you do have difficulties in making repayments for your loan. Contact your lender immediately. The sooner you seek advice from your lender, a debt adviser or the local Citizens Advice Bureau the easier it will be for them to assist you and hopefully avoid the need for any drastic action.

Don’t – take out the first loan which has been offered to you, make sure you shop around for the best loan deals. Using your bank to arrange either a personal loan or secured loan from a misguided sense of loyalty or because they are familiar is a mistake many people make. You owe your bank nothing. You do however owe it to yourself to ensure you choose the best deal available to you on a loan.

Don’t – be embarrassed to ask why if you are turned down for a loan. If a personal loan company has given you a bad credit score or you have an adverse credit reference then you should check that it is correct. If it is not you have the right to request corrections to be made.

Get a loan which suits you

Obtaining a personal loan or secured loan to make a major purchase is easy. Getting the best loan deal can prove to be much more difficult but you owe it to yourself to ensure you do your best to get a personal loan which suits you and not just the lender. So take time to look at all your options, shop around don’t be afraid to ask questions and compare different types of loan cover and costs. Even if you do agree to taking out a personal loan with someone you would normally have a 14 day “cooling off” period in which to change your mind. If you are in any doubt regarding the loan offer, use this option to cancel the loan. Remember you will have to live with your loan deal for a long time and if you chose unwisely now you will be suffering the consequences for even longer.

Finally, you should also bear in mind that if you chose to borrow from another person rather than an organisation, any interest that you pay to them must be declared on their tax return.

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