The Defaqto Guide To Loans

The Defaqto Guide to​ Loans
If we believed everything we saw on​ the​ telly,​ just about every bank,​ building society and other financial body would like nothing more than to​ throw cash our way .​
How many adverts have you​ seen on​ the​ television offering you​ a​ chance to​ get your hands on​ a​ hefty lump sum? Or how many special deals have come through your letterbox in​ the​ last 12 months,​ offering you​ the​ answer to​ all your financial woes? There is​ no doubt that a​ personal loan provides a​ good opportunity to​ organise your finances or​ improve your standard of​ living,​ whether it​ be with a​ shiny new car or​ a​ more reliable washing machine .​
But personal loans are usually more complicated than some lenders let on.
Firstly,​ the​ rate being dangled in​ front of​ you​ may not always be the​ one that comes your way .​
It is​ actually your own personal circumstances that will dictate your rate .​
How you​ go about applying for a​ loan,​ who you​ apply to,​ how much you​ want to​ borrow and for how long you​ want to​ borrow it​ are just some of​ the​ factors that have a​ huge effect on​ the​ amount you​ have to​ pay back .​
One big reason for taking a​ loan is​ to​ consolidate your debt and make life easier by having it​ all in​ one place – but this can also end up meaning the​ repayment term is​ extended.
Many loans offer a​ good way of​ organising your debt and making sure you​ pay off a​ fixed amount per month .​
But if​ you​ are not careful,​ you​ could end up paying a​ high price for choosing the​ wrong loan in​ the​ first place.
Making the​ Right Choice
Making it​ personal
If you​ want to​ borrow money but do not want to​ secure the​ loan against your other belongings,​ an​ unsecured personal loan is​ the​ way to​ go .​
Unsecured means you​ are not tied in​ by any guarantees,​ unlike a​ secured loan such as​ a​ mortgage,​ which is​ tied into your house.
Obviously,​ you​ are contractually obligated to​ repay the​ money and if​ you​ miss payments you​ could get a​ big black mark against your name.
In general,​ you​ can borrow from £500 to​ £25,​000,​ which you​ pay back on​ a​ monthly basis over a​ period of​ six months to​ 15 years .​
However,​ an​ unsecured loan means more risk for the​ lender and in​ turn,​ makes them more wary about how much they lend and who they lend it​ to.
The most common personal loans are fixed,​ which means repayments are set at​ a​ certain amount over a​ set period of​ time .​
Variable loans are also available,​ although this means that your interest rate is​ dependent on​ the​ bank base rate and could fluctuate.
Planning ahead
There are lots of​ loans out there and rates can vary from just under 6% right up to​ 20%,​ so by looking around for the​ best deal you​ could save yourself hundreds of​ pounds in​ interest .​
Taking out a​ loan also means you​ need to​ plan ahead.
If you​ want to​ borrow a​ lump sum of​ cash,​ you​ need to​ set out how much you​ can repay and over how many months .​
So,​ work out your monthly budget and think about how long you​ want to​ make repayments for .​
Obviously,​ the​ longer you​ take to​ pay it,​ the​ more the​ interest accumulates.
The last thing you​ want to​ do is​ agree to​ a​ long-term repayment scheme and then realise you​ can pay it​ back earlier than you​ thought,​ especially if​ the​ loan includes early repayment fees.
It may seem like a​ lot of​ effort,​ but getting a​ number of​ quotations and making sure you​ compare like-for-like loans will help you​ save money in​ the​ long-run.
TIP: Try to​ ensure you​ compare like-for-like loans.
TIP: See if​ you​ can negotiate with the​ lender for a​ better rate – if​ you​ don’t ask you​ don’t get!
TIP: Lenders may also charge an​ additional fee for instant or​ same-day electronic transfer,​ for example by CHAPS (Clearing House Automated Payment System) .​
If you​ request normal delivery,​ of​ two or​ three days,​ e.g .​
BACS,​ you​ could avoid this fee.
Where to​ go
Most people like to​ talk things over with a​ real person before making a​ decision to​ borrow money - it​ is​ often more comforting to​ see a​ smiling face and get some advice .​
But going along to​ your local bank to​ sign up to​ a​ loan may be better business for them than it​ is​ for you​ .​
Loans that you​ can sign up for over the​ internet offer some of​ the​ best rates,​ but you​ do need to​ make sure you​ look at​ the​ details and the​ small print.
Take an​ interest in​ your loan
The Annual Percentage Rate (APR) is​ the​ rate you​ should be looking out for as​ it​ includes the​ overall rate of​ interest plus any other charges .​
But while a​ loan may have a​ very low typical APR,​ this does not always tell the​ whole story .​
Typical APR means that more than 66% of​ people who make a​ successful application are eligible for that rate - which leaves a​ large group who will be offered a​ higher rate or​ who may be refused if​ they do not make the​ grade .​
And making the​ grade is​ about various things,​ including your personal circumstances,​ how much you​ earn,​ and your credit history .​
So remember,​ the​ APR is​ likely to​ be matched to​ your risk level .​
Also,​ the​ APR may not tell you​ everything you​ need to​ know about your loan .​
You may want to​ check what charges and features are actually included in​ the​ APR you​ are being quoted.
TIP: Checking the​ APR is​ one thing,​ but you​ also need to​ make sure you​ check how much the​ monthly repayments are and how much the​ overall sum is​ that you​ are paying back .​
It is​ vital that you​ know this before you​ sign on​ the​ dotted line.
TIP: Also check out the​ penalties if​ you​ want to​ repay the​ loan early.
Know your history
When you​ borrow money without putting down any collateral,​ you​ are already seen as​ a​ bit of​ a​ risk by a​ lender .​
However,​ if​ you​ have had problems paying your debts in​ the​ past,​ you​ are likely to​ have a​ couple of​ black marks against your name .​
Defaults and County Court Judgements (CCJs),​ which may have been taken out against you​ if​ you​ have not paid debts in​ the​ past,​ are going to​ stand in​ the​ way .​
Certain groups,​ such as​ self-employed people,​ may also find it​ tougher to​ fit a​ lender’s criteria.
TIP: you​ should make sure that credit agencies,​ which keep track of​ your credit history,​ have got the​ correct information .​
Your application for a​ loan may well be affected by a​ credit agency.
Making Your Loan Work
Making life more simple – debt consolidation
There is​ nothing quite like seeing your bank balance back in​ the​ black and a​ credit card account in​ the​ clear .​
a​ loan offers a​ good way of​ making this happen by shifting all your debt into one place .​
This may mean transferring it​ across from several credit cards or​ an​ overdraft facility – both of​ which may be charging higher interest rates.
Several credit cards may mean you​ have bills flying at​ you​ from all angles and at​ different times of​ the​ month .​
Not only is​ it​ difficult to​ keep track of​ your outgoings,​ it​ may also be a​ right pain having to​ fill out all the​ payment slips .​
a​ personal loan could make life easier and more organised,​ especially with fixed direct debit payments that leave your account with little or​ no effort on​ your part .​
However,​ you​ need to​ make sure you​ go into a​ loan with your eyes wide open .​
By taking out a​ larger loan to​ cover your debts,​ you​ may be committing to​ a​ longer term of​ repayment,​ which adds up to​ more interest .​
More manageable monthly repayments may make you​ feel as​ though you​ have more cash,​ and you​ may even have a​ little extra in​ your account left over from your total loan amount .​
But it’s no good fooling yourself - debts don’t vanish into thin air and the​ lender certainly does not forget about them .​
Remember,​ you​ owe the​ same amount of​ money,​ if​ not more,​ when you​ consolidate your debt.
TIP: Once your other debts have been cleared,​ you​ need to​ make sure history does not repeat itself .​
Avoid maxing out your credit card again or​ you​ will end up in​ an​ even worse situation .​
Your best bet is​ to​ cut up your cards,​ speak to​ your bank about your overdraft and remove the​ temptation altogether.
Paying it​ back
You need to​ bear in​ mind that lenders are not offering you​ money out of​ the​ kindness of​ their hearts .​
Although many people manage to​ pay debts off early,​ you​ may actually be penalised for paying the​ money back quickly! Early Repayment Charges are put on​ loans so lenders get as​ much interest out of​ you​ as​ they can .​
By paying back a​ loan of​ less than £25,​000 one year early,​ you​ may be forced to​ pay a​ penalty of​ one or​ two month’s interest .​
Flexible loans let you​ pay back different amounts of​ money at​ different times,​ but these often charge a​ higher rate of​ interest .​
Remember,​ if​ you​ do get into any difficulty,​ honesty is​ always the​ best policy .​
It will be much better for everyone if​ you​ face the​ problem head-on,​ because by ignoring it​ and letting it​ fester,​ you​ could be putting yourself and your family in​ serious trouble .​
The sooner you​ explain your situation to​ your lender,​ the​ sooner both parties can arrange the​ best way of​ getting things back on​ track.
Bear in​ mind,​ just because it​ is​ an​ unsecured loan,​ that does not stop lenders from going to​ court and making you​ pay one way or​ another .​
This could lead to​ a​ black mark against your name,​ such as​ CCJs .​
Also think about what will happen if​ you​ do miss a​ payment.
TIP: Be honest about your financial situation or​ you​ could find yourself in​ court.
Points of​ Reference
Credit agencies:
MoneyExpert was formed in​ May 2003 after a​ management buyout of​ Blays,​ the​ longest established provider of​ comparison data to​ the​ financial services industry .​
The organisation provides an​ up-to-the minute financial comparison service allowing customers to​ select from all suitable products from all relevant providers .​
It is​ partnered with the​ financial research company Defaqto whose customers include a​ number of​ banks and insurance companies as​ well as​ the​ FSA .​ was rated one of​ the​ top 50 businesses to​ watch for in​ 2018 by Real Business magazine.
Alexander Cowen Wright,​ PR & Communications Manager,​ MoneyExpert – 01942 710979
MoneyExpert Limited is​ authorised and regulated by the​ FSA .​
Firm Reference Number 301654.

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