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Loans are supplied for all kinds of reason. Some borrowers might wish to buy a house or new car, while others might need an injection of cash to pay for a holiday or home improvements. Whatever their reasons for making a loan application, borrowers are likely to encounter just two types of loan: secured and unsecured.

Secured Loans

A secured loan simply uses the borrower`s property as security for the loan. This means that secured loans are only available to homeowners; however, some lenders do provide secured loans for people who do not own their own homes but have guarantors who do. The obvious risk of a secured loan is that defaulting on repayments could result in the borrower losing his home.

Unsecured Loans

An unsecured loan is different from a secured loan in so far as the lender does not require the borrower`s property to be used as security for the debt. This does not, however, mean that a homeowner who obtains an unsecured loan would not lose his home if he defaults on repayments. Lenders can use Charging Orders to demand the sale of assets belonging to borrowers who run up bad debts. The proceeds from the sale of assets are used to pay off any outstanding debts, so it is still possible for those with unsecured loans to lose their homes.

Unsecured loans tend to be for relatively small amounts of cash. Most unsecured loans range from £1,000 to £25,000, with the majority of accepted applications being in the region of £5,000. Because no security is provided for the debt, unsecured loans are usually subject to higher rates of interest than secured loans. When deciding whether or not to apply for an unsecured loan, prospective borrowers must weigh the benefit of receiving an immediate lump sum of cash with the affordability of repayments and the total cost of interest over the repayment period.

Why Take Out a Loan?

Many people apply for a loan because they need an injection of cash for a specific purpose. As mentioned above, numerous unsecured loan applications are made every year so that borrowers can spread the cost of an expensive purchase over several years (typically between one and ten).

Buying a new or used car is one of the most common reasons for obtaining an unsecured loan. Alternatives to an unsecured loan used for this purpose include hire purchase and personal contract purchase. Although options for car finance have improved markedly in recent years, an unsecured loan is preferred by many because it provides car buyers with an excellent bargaining position – car dealers are rarely able to resist cash purchases, even if they have had to haggle with customers.

Borrowers might also use an unsecured loan to pay for a family holiday, which might be too expensive unless the cost is spread out over several months or years. Home improvements are another popular reason why people apply for unsecured loans. New flooring, paint, tools, decking, fencing and even new kitchen units and equipment cost a considerable amount of money. Using an unsecured loan to pay for such items can be convenient and cost-effective.

Finally, one of the most common reasons why people apply for unsecured loans is to consolidate existing debts. During times of economic uncertainty, many people experience financial difficulties, especially with credit cards and purchase repayments. An unsecured loan can reduce monthly outgoings by providing the borrower with just one repayment at a potentially generous interest rate. If an applicant is refused credit from the leading lenders, he might still be able to obtain a loan for bad credit at a higher APR.

7:01 pm

Traditionally if you wanted to take out a personal loan, there would be little choice involved. The only lenders willing or able to provide you with the loan would have been the high-street banks and building societies. Today, things are very different. There are many other lenders offering loans. Supermarkets, for example, are now very active in this market, as are online banks and even motoring organisations such as the AA and the RAC. The fact that there is such competition is good for the consumer but can also lead to confusion. Just what is the best way to evaluate lenders and their products?

Making a mistake in choosing your lender could prove to be a very expensive business in the long term. If you take out a large loan, it can easily cost you thousands of pounds more over the course of the loan than you would otherwise have paid.

To save yourself money and make the right choice when deciding on which loan provider to go with, here are the top five things to consider.

1. The annual percentage rate (APR) is the key to how much you will pay back on the loan. It is a good idea when shopping around to look at the lenders` headline rates and then approach the one offering the lowest APR. Be aware, however, that you may not qualify for the best rate and the lender might offer you a loan at a higher rate than advertised. Make sure as well that there are no other hidden fees or costs involved that would make overall payments higher than expected.

It is also worth checking whether the APR advertised is fixed rate or variable. Most personal loans are offered at a fixed rate but if your loan is tied to a variable rate you could be in for a nasty shock if interest rates go up. Another potential trap to be wary of is the discounted introductory rate. In this case you would be paying a lower rate for the first few months of the loan but then face a sudden steep rise in payments when the introductory period ends.

2. It is always a good idea to save yourself money and pay off loans early if you can. Many lenders, however, will make you pay hefty redemption penalties if you try to do so. This can drive up the overall cost of a loan significantly. To avoid this make sure you read the small print before committing yourself.

3. Many lenders offer insurance with their personal loans. These payment protection policies are a good option for some, but can be expensive and have often been mis-sold in the past. Before agreeing to take out such a policy, make sure that you are aware of all of the terms and conditions.

4. The option to take payment holidays on your loan can seem very attractive. Be aware, though, that this can often come at a price. You will often have to pay a higher APR if you do this. Also, the interest payable will be added to the total amount you have to pay back.

5. When choosing a personal loan provider, always make sure that it is one that you have heard of before. Do some research before making the loan application. Remember that once you have signed the loan agreement you are committed. Reputable companies will not charge you excessive interest rates or redemption penalties, while less reputable ones may well do so.

Having considered all of these factors, the best next step is to use an online loans calculator. You can then go ahead and apply for a loan with the assurance that you are not paying more that you should and that the loan is appropriate to your needs.

6:56 pm

If you have a sudden need for instant cash but are unable to free up any of your savings for several months, bridging loans could provide the ideal answer. Funds made available via bridging loans are usually accessible in 24 hours, as compared to a mortgage which can take weeks to set up.

This can be an excellent method of buying property at Auctions, or if you need to move areas for your work, for example and have to purchase a house, using a bridging loan may be necessary if you have not yet sold your property.

The terms of bridging loans are short; the maximum time taken to pay it back is usually a year. However, repayments are usually paid off much quicker, usually within six months or less. This is because bridging loans are an expensive way of loaning money, costing about 1% or more on month in interest. They should not be entered into lightly but only if you are sure you do not need to borrow the money for long.

The risk to the loan provider is higher than with a regular mortgage as they are relying on the sale of another property or a successful mortgage application. If this does not happen, the lendee may be left with a loan they cannot afford to pay back and loan provider may have lost a substantial amount of money. The loan provider will need to be convinced you can pay the money back and are not overstepping your budget.

Bridging loans are not only given for the purpose of buying property before you have sold your old house. Auctions purchases are often financed by bridging loans, which may have been agreed before the auction. Temporary cash flow problems or short term funds for business use can also be helped this way, if security can be provided. Buy-to-let, land purchase and property development can be financed this way as the purchase provides the collateral.

Bridging loans can be very useful if you know the money will be forthcoming in a short period of time, but should never be the first consideration. Try and look for alternative methods of raising the money, such as an investment from a business associate. Bridging loans are often seen as a last resort due to the high interest charged. However, businesses write this cost into their accounts and if they are creating money on the transaction it is a viable option.

Another option if you need to borrow smaller amounts may be to choose a 0% interest Credit Card. This type of card allows you to make purchases interest free for 6 months, giving you a little breathing space. Pay off the money over the next six months otherwise you will be paid interest, but as long as you have cleared your debt within 6 months it can be a good alternative to a bridging loan. The main disadvantage to a 0% credit card, however, is it is only available for smaller priced items, such as cars. For temporary cash flow problems, it may be just the answer.

2:07 pm

Most people at some point in their life are looking to borrow money. Of the wide variety of ways to secure some form of finance most people will look at a personal loan. A personal loan is used to describe general purpose finance secured for person use rather than a business. However it doesn’t describe a home loan or mortgage which is taken out for the purchase of a home.

Personal loans can be taken out for a wide variety of purposes and generally the loan provider won’t even be concerned with what you intend to use the loan for. They’re just concerned that you have the ability to repay the loan within the set term. Specialist loans are also available, such as auto and home improvement loans which are anticipated to be used for the particular purpose.

Loans work on the principal that you agree the terms of you loan such as the interest rate and borrowing period and from this the monthly repayment amount will be calculated.

Apart from this fact the majority of personal loans work in much the same way. You apply for your loan, get your money and then spend it as you intended. You will then make a regular payment (usually on a monthly basis) to your lender to repay the money you borrowed for the period of time in your loans agreement. This payment will be made up of a sum of money that goes to pay off the original sum you borrowed plus a sum that goes towards paying off the interest you’ll be charged. So, at the end of your loan term you’ll have repaid your original borrowings and the interest attached to your particular loan.

There are generally two types of personal loan:

  • Unsecured Loan These loans don’t require any security from the lender however you can expect to pay a higher interest rate on your repayments. You may also be limited on the amount you are able to borrow from the lender.
  • Secured Loan This type of loan allows you to borrow more and usually at a lower interest rate however the loan is secured against something you own of value – usually your home.  These loans are cheaper the lender will usually be willing to lend a larger amount. This is because should you default and be unable to repay the loan, the lender has your home as security to recover the money owed.

If you don’t own a property then you will normally be limited to an unsecured loan. However if you do own your own home you’ll be offered the choice of either a secured or unsecured loan. The choice is yours as to whether you are happy to risk putting your property up as security to secure a improved arrangement. Many people are prepared to do this to get a decent repayment interest rate and to borrow the full amount required. But as stated the choice is down to you.

It’s wise to spend some time calculating how much you can comfortable repay, especially considering interest rates are usually variable and can rise, so take this into account when deciding.

If you’re considering taking out a personal loan its worth shopping around for the best deal. There are literally thousands of loan providers on the web as well as high street banks or it may be worth trying one of the many price comparison websites to find a better deal.

6:21 pm

You have found the car that’s perfect for your needs. Now only one thing stands between you and the car of your dreams. Ideally, you would pay the full price in cash without thinking. But if you are like the seven out of ten of car buyers who do not live in a perfect world, then chances are you would be paying for your car through one of several financing schemes.

Understanding the basics of each car financing option is key to choosing the automobile financing strategy that best suits your situation. Here is an overview of auto credit options that may be available to you.

Auto Loans from Lending Institutions – You can get a car loan from a bank, credit union, or other lending institutions. The car that you purchase will serve as collateral for the auto loan. This means that the lender can repossess your vehicle if you default on the car loan. Auto loans are a popular Auto financing option because they generally offer reasonable interest rates and are relatively easy to get.

Two factors are likely to affect the total cost of the Auto loan. One is, the term or duration of the loan. Generally, the longer the term of the loan, the lower your monthly instalment will be. But you will end up paying more towards interest and this will increase the total cost of the Auto loan. If you can afford it, get a short term loan. Your monthly repayment will be higher, but you will be paying less money over all. Another factor that may affect the total cost of your car loan is your credit rating. Borrowers with a poor credit history are usually charged at a higher interest rate because of the elevated risk.

Home Equity Loans – If you own a home and have accumulated substantial equity on your home, then you may consider getting a home equity line of credit. Home equity loans – sometimes referred to as HEL’s – are fixed or adjustable interest loans that you repay over a predetermined period. Home equity loans are open-ended, adjustable interest loans with a maximum credit limit based on the equity of your home. Most Home equity loans tend to have lower interest rates than credit cards and other types of personal loans. Interest rate payments on home equity loans may also be tax-deductible up to a certain extent. An important warning Home equity loans use your home as collateral against your potential inability to repay the loan, so make sure you are financially capable of repaying the monthly instalments if you do not want to run the risk of losing your home.

Dealer Financing – Like traditional auto loans, Dealer financing is reasonably easy to get. Most dealers have relationships with numerous lending institutions, so they can arrange car loans even for car buyers with blemished credit histories. To compete with traditional bank loans, many dealers offer zero per cent or very low interest on dealers loans. However, such loans are available to car buyers with stellar credit. Consumer experts advise auto buyers to get pre-approved on an auto loan from a bank or credit union before approaching the dealers for possible financing. By getting loan pre-approval from another lending institution, an auto buyer gets the upper hand when bargaining for a lower rate on a dealer loan.

Credit Cards – Borrowing from your credit card, also known as a credit card advance can help you to obtain your dream car. Like home equity lines of credit or credit card advances are lines of credit with variable interest rates. To entice existing customers to take advantage of credit card drafts, credit card companies will often waive cash-advance fees, whilst ensuring low rates during the initial period of the loan, or alternatively offer high credit limits. However, because credit card drafts are unsecured, they generally have higher interest rates than the other forms of financing discussed previously such as traditional auto loans, dealer loans or home equity loans. Financing your auto purchase through credit cards could also leave you vulnerable to hefty penalties if you make a late payment or happen to exceed your credit limit.