Types of loans
Borrowing money isn't as easy as it used to be. Lenders have become much stricter, but there are still various options available.
A secured loan is only available if you own your home. It gives the lender the security of knowing that if you fall behind on repayments they can claim the money back by repossessing your home. A mortgage is one type of secured loan, but there are many others.
How much can I borrow? It depends on the value of your home and the size of your existing mortgage. Lenders are unlikely to lend the full value of your home.
Interest rate: Often cheaper than you would expect for other types of loans, although the rates can range enormously depending on your credit rating and the amount you want to borrow compared with the value of your home.
Pay back time: Mortgages are often spread over 25 years, but most ordinary secured loans for smaller sums are repaid within 10 years or less.
Problems: You could lose your home if you don't keep up with repayments.
Unsecured personal loans
This is just a bank loan; it isn't secured to any of your possessions. It's useful if you need to pay for a large item, such as a car, make home improvements or consolidate other debts.
"The longer your repayment time, the more interest you will pay."
How much can I borrow? This really depends on your circumstances. The maximum is about £25,000 but many lenders now restrict borrowing to under £15,000.
Interest rate: The rate will vary depending on how much you borrow, the period of time you agree to pay back the loan and your credit rating. The best rates are only available to those with perfect credit scores.
Pay back time: This can be anything between 12-96 months, although 60 months is most typical. The longer your repayment time, the more interest you pay because you have the loan for longer. Some banks offer you the chance to combine all your financial commitments into one loan with a fixed interest rate so that you can pay your debts off gradually by making one payment each month.
Problems: If you can't make repayments the bank can blacklist you, which could make it hard for you to get credit in the future.
As a university student, you are able to get low interest loans to help you get by while you are studying. These loans are partly means tested, and eventually have to be repaid in full. The loans are run by the Student Loans Company, but you start by contacting your Local Education Authority (LEA).
Career development loans
This is simply a deferred repayment bank loan to help you develop your career through education and/or training. You can borrow anything between £300 and £10,000 to help you fund up to two years of learning, plus (if relevant) up to one year's practical work experience where it forms part of the course. The interest rate will depend on the bank but should be competitive against an ordinary personal loan. You are expected to start paying it back one month after the end of the course. It is not available if you are studying for your first degree.
Dealers may offer finance on specific cars whether you are buying new or used. The rate and the amount you can borrow will reflect your credit rating and depends on the car you want to buy. Some deals may not turn out to be as good as they look. Make sure you work out the full cost of the loan not just the monthly repayments. You may end up spending much more than you imagined.
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