Figuring Out Finance

figure-out-financeLoans; at one time you could hardly avoid taking out one, but today with the credit market suffering from something of a contraction, finding a loan can seem like an impossible task.  In the heady days of ‘buy now, pay later’ a mere three or four years ago, banks and lenders were falling over themselves to offer anybody and everybody loans for anything and everything.  The market is more ‘nervy’ these days, but finding a loan is not a complete impossibility.  Unlike many national governments most of us don’t have the option to simply print money when we need it, so understanding what type of loan is available can help you to choose the most suitable kind and help to find available finance.

Types of Loan

There are three main types of consumer loans that most of us will have access to; these are secured, unsecured and car loans.  A secured loan is borrowed against your assets, usually your home, while an unsecured loan is not tied to your property or other assets.  Car finance also falls under the heading ‘secured loan’ being secured against the car itself.  Unsecured loans generally range from around £5,000 up to £25,000 – although in recent years the number of providers offering smaller amounts has increased as the short term loan (sometimes known as a pay day loan) has risen in both popularity and availability.  Generally for larger amounts lenders will look for some type of security, so amounts upwards of £25,000 (less in some cases) will be available only if you have substantial assets, usually in the form of equity in your home.

Advertised and Available Interest Rates

Loans are offered at a number of different interest rates and with the Bank of England base rate being at an historic low, there is considerable competition in the lending market.  Although finding credit can be harder, this competition means that low interest rates are common, making credit more affordable than it has been for some time.  However, the Annual Percentage Rate (APR) available on different types of borrowing can varywidely and a number of factors will determine the best rate available to you.  The basic factors are your personal circumstances which include your income, your assets (in the case of secured loans) and your credit history.  A poor credit history does not mean you will not be able to access finance, but you will normally pay a higher rate of interest if this is the case.  Lenders are required to offer their advertised rate (the “typical rate” on the loan ‘blurb’) to at least sixty six per cent of their customers – this means the advertised rate is a good guide, but may not necessarily be the rate you are offered.

Paying Back the Cash

Loans need to be repaid and in most cases this is over a specified period; normally loans are repaid in monthly instalments and in most cases there will be a penalty for early repayment.  This figure varies from lender to lender but is often set at two or three month’s interest.  In the case of the short term loan, the period is normally only one month and not all lenders will charge a penalty for early repayment of the loan; check the ‘redemption’ fee on the paperwork to see if an early repayment fee does apply.  Payments on longer term loans, particularly secured loans, may seem cheaper but it’s important to remember that you’ll be paying much more in interest over the period of the loan than if you borrowed for a shorter period of time, so try to borrow for the shortest period that is feasible.

Considering the Options

Finding the right loan can take some time and you should always shop around carefully.  Many online-only lenders are available and these can often provide credit at a lower cost to the consumer – although this is not always the case.  In addition to the high street banks, there are numerous online lenders, particularly in the short term loan market, and you may also find that there is a Credit Union in your area who can offer a competitive rate for small loans.

William Bancs is a freelance writer who contributes to a number of personal finance and loan sites.  While finance is still available, finding the right package is essential before taking on debt. 

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