Loans: The Most Frequently Asked Questions

December 12th, 2019

Read the most frequently asked questions about loans; compare quotes and find the best deal to suit you.

Is it a good idea to take out a loan?

If you want to borrow money from a bank, building society or other source, it is called a loan; you will have to pay interest on your repayments and be at risk of debt if you cannot manage to pay back each month. Find out more in our beginners’ guide to loans.

What is the amount I should borrow?

It depends on what you need the money for but as a general guideline, it’s wiser to borrow only the amount you think will cover your needs. Sometimes though, if you borrow a large sum you may be charged a lower rate of interest and it’s worth shopping around.

How should I best calculate what my loan will cost?

The APR (annual percentage rate) is not the only figure to consider. Look at your monthly repayments and also the Total Amount Repayable (TAR), which includes fees and charges and will therefore reflect a more accurate figure.

What does a secured loan mean?

When a loan is secured against an asset it is called a secured loan; this is usually your home and it sometimes referred to as a homeowner loan.

Loans are frequently between £25,000 and £100,000 with variable interest rates. It is important to double check you can meet your monthly repayment amount or you could be at risk of losing your home.

What is a personal loan?

This type of loan is not secured against a property or any other asset. On a personal loan you can usually only borrow a maximum amount of £25,000; there tends to be a fixed interest rate.

Are you aware…?

You can be at risk of losing your home for failure to pay your monthly fee even if you have taken out an unsecured personal loan.

Is there a chance with a personal loan that I could lose my home?

If you cannot meet your monthly payment, then yes it is possible. In the event of this happening the lender will apply for a ‘charging order’; this could potentially lead to a forced sale of your property. Seeking such an order is not a straightforward process though.

What does a debt consolidation loan mean?

If you combine the debts you may have into one debt you can take out a debt consolidation loan; the advantage of this is that you could find you are repaying less than by paying each debt off separately. The way this works is because the more you borrow, the more your interest rate is likely to fall.

What does social lending mean?

This is when money is loaned by individuals via a social lending website, for example: Zopa or Ratesetter.

Are payday loans sensible?

No, they are not a good idea and are expensive, it is best to avoid these firms. However, if you use our handy search tool, we can match you up with a lender who is less likely to leave you with a bad record of debt and your credit rating sorely dented.

What if I want to make an early repayment?

This should be possible to do without paying penalty charges if your loan is an unsecured personal loan. With a secured loan, early repayment fees usually apply.

What is a payment holiday?

A ‘payment holiday’ is time given to you in which you are exempt from making payments within a pre-set period, usually about 3 months.

This does not mean that the amount due within this time will be written off, simply that you are given a ‘holiday’ period in order to support you, financially, on a temporary basis until you can pay again.

It is best to check Terms with your provider as not all loans come with this option.

Are borrowers charged the same rate for each loan?

The rate of interest you are charged is linked to your credit rating; therefore anyone with an excellent credit rating may well be offered a lower rate. However, if your credit rating is low, you may struggle to borrow even a small amount.

Will a lender loan to me if I have a bad credit rating?

It is still possible to borrow if you have a poor credit record with a bad credit loan. This type of loan typically carries a higher interest rate than regular loans; it is wise to give serious thought before taking out a loan as to whether you will be able to manage the repayments.

Is it wise to borrow from my bank?

Before deciding on any lender, read through the Terms & Conditions. There is no problem borrowing from your bank but you may not get such a good deal. It is always a good idea to shop around and see if you can find a loan with a better rate.

If I shop around for a loan, will it affect my credit record?

No. if you go through our user friendly search tool, you can be put in touch with lenders who are not likely to leave a bad stain on your credit record.

For answers to any further questions, see our loan guides.

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