With jobs being cut and wages frozen, thousands of people are turning to loans for the first time. If you’ve never borrowed before, the thought of a loan can be quite intimidating, which is why we’ve complied a list of everything you need to know.
Types of loans
There are two types of loan: secured (sometimes known as a homeowner loan) and unsecured. An unsecured loan is usually aimed at people wanting to borrow smaller amounts of cash, while a secured loan uses your property as collateral and therefore usually relates to larger figures.
The advertised rate of interest or APR (Annual Percentage Rate) is known as ‘representative’ or ‘typical’. This means that the rate has been offered to the majority of customers, but you might be offered a very different rate, depending on your credit score and repayment history.
The importance of your credit score has already been stressed in the last point, but it’s worth mentioning in more detail. Everyone has a credit report which is compiled by credit reference agencies.
Everything from your loan applications to CCJs are recorded on the report. You are given a score, based on your credit history, which is then used by the lender to establish whether you are a reliable borrower. A poor credit rating can increase interest rates and even mean you are not eligible for certain loans.
Your monthly repayment will vary depending on the amount you borrow and how long you borrow it for. If your monthly payment is too high, you can reduce it by extending the term, but this will cost you more in the long-run. It’s important that you only borrow what you need and keep the length of the term to a minimum.
If you’re looking to find a secured loan now or even an unsecured one, it’s always important to compare what’s available to make sure you get the best deal. Remember to compare the advertised APR (and confirm the actual APR with the lender before agreeing to the loan), but also look at other factors, such as whether you need a minimum annual income.