Your Guide To Loans

How to choose a loan
Sometimes you have to take out a loan. Yet how do you go about finding the right one for you? And what do you need to be aware of hidden in the small print?
This is what you need to bear in mind.

In the past, your bank was the first place to go for a loan. These days, however, lots of different companies from finance houses, supermarkets and specialist loan companies to traditional banks and building societies have different loans on offer to the consumer.
The main thing is to choose a loan that is competitive and also meets your needs. To secure the right loan for you, you need to answer some key questions

Is the loan secured?
A loan can either be secured or unsecured. A secured loan is one that is bound to your home. Be very aware that if you do opt for a secured loan any failure to keep up the repayments could mean you have to sell your home to clear your debt.
Although unsecured loans are not tied into anything defaulting on repayments can mean that you are blacklisted therefore making it very difficult to get credit in the future.

What is the APR?
APR stands for Annual Percentage Rate. This is the amount of interest per year that you will be required to pay back on your loan .Generally, the more money you borrow, the lower the interest will be. Looking at APR rates is one of the best ways to compare what kind of loan rates are on offer from different lenders. Sometimes lenders calculate their Annual Percentage Rate in different ways so do be careful that you compare like with like. In general, the more money you borrow, the lower the interest rate will be. The best way to compare rates is to look at the Annual Percentage Rate (APR) offered. Confusingly, different lenders calculate this in different ways, so when looking at loans always make sure you are comparing like with like.

How long will the loan last?
The term of a loan varies enormously 1 year, 3 years, 10 years and even 25 years for large loans like mortgages. Whatever the agreed period of time is, loans are usually paid off in monthly installments. Obviously, the longer the period of repayment, the more interest you will need to pay back. Hence you should always opt for the shortest time period that you can realistically afford.

What if I want to pay it off early?
You will need to check this. Most lenders allow early repayment on loans but be sure to read the small print because often there is a financial penalty for doing so and in some cases this can be quite considerable.

How much is the monthly repayment?
Obviously this depends largely on the amount of money borrowed. Make sure you know exactly how much the monthly repayment will be before you agree to any loan. Most importantly, make sure that you can afford them.

Are there any repayment penalties?
If you repay your loan early some lenders will definitely charge you a penalty. Some companies, however, now offer so-called flexible loans which allow you to repay a loan whenever you want. This is particularly useful if you know you are going to get an annual bonus for example, or if you have a tax rebate due but do remember that the loan will have to be paid back at some stage and the longer the term, the more interest you will pay.

Do I need loan insurance?
This, of course, does incur an extra cost but like any insurance policy it is worth considering. In the event that you became ill or were made redundant or indeed were unable to work for whatever reason then your loan would be paid off for you.

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