Choosing the Right Type of Loan!

Personal Loans are governed by the Consumer Credit Act 1974. The Act contains strict regulations about how money is lent. When taking this type of loan you will be asked to sign a credit agreement. Read this through carefully before you sign, as you will be bound by its terms. Personal loans can either be secured or unsecured. With a secured loan you need an asset, normally your property, to be used as security for the borrowed amount.

Interest rates tend to be lower for secured loans as the lender is taking a lower risk. If you do not own a property then generally your option will be an unsecured personal loan, unless you have alternative assets that you can use. Unsecured personal loans are available for sums between £500 and £25,000 with repayment terms ranging commonly from 6 months to 5 years (60 months) although longer terms are available. Personal loans may be used for any legitimate purpose, however, some lenders will have specific products tailored to particular purposes, for instance car loans.

Restrictions are also placed on personal loan terms because of their purpose. For instance, for an annual holiday where the benefit lasts a short time most lenders and advisors would suggest payments over 12, and certainly no more 24 months. For more substantial purchases, for instance, a new car then 3 to 4 years is reasonable, as the value of the car should persist through the period of the loan. In the main, short term smaller borrowings suit unsecured loans.

It is also true that many unsecured loan providers require borrowers to have regular, provable income making it more difficult for the recently self-employed or those who have just changed jobs to acquire a personal loan. For these individuals a secured loan is often a better option. Secured home owner loans are generally available for sums between £3,000 and £75,000 with repayment terms between 3 years and 30 years with the most common terms being 10, 15 and 25 years.

Secured loans are most effective for more substantial personal loan sums as the generally longer term makes the monthly commitments more affordable and more easily budgeted. The rate of interest that you pay can either be fixed or variable. With a fixed interest rate of interest the rate is fixed at the same amount for the duration of the personal loan. This offers the security of knowing exactly how much you will be paying, but could be more expensive than a personal loan with a variable interest rate if rates reduce during the term.

With a variable rate loan, the rate of interest may move up or down depending on general interest rates in the market. As a general guide, it is advisable to compare the Annual Percentage Rate, (A.P.R) of different lenders. If you need a personal loan but are having difficulty being accepted you can probably still be helped. It may be that you have had previous credit problems or simply that you are being declined due to lenders overall credit scoring systems.

Whether a secure loan or unsecured loan, just as with a mortgage, you should consider taking out a payment protection policy with your personal loan to ensure that you continue to meet your repayments in the event that you fall ill or lose your job. Sometimes lenders will charge a lower rate of interest if you take out a payment protection policy, although a payment protection fee will be added to your monthly repayments.

Are you paying too much for your credit?

Credit cards, store cards and old loans could all be replaced with one, lower, convenient repayment. Consolidation loans are used to bring together the outstanding balance of two or more debts under one personal loan in order to achieve a lower interest rate or a longer term so that the overall monthly commitment is reduced. The desire to consolidate can be driven by many reasons for instance a change in personal circumstances or an urgent need to borrow extra funds when the monthly budget is committed between living expenses and existing short term loans.

Be sure to check the cost of repaying any existing loans early before committing to consolidation option.

It is important to consider advice if you are concerned about meeting your current personal loan repayments. Your local Citizens Advice Bureau Money Advice Centre Details are in your Yellow Pages or Thompsons Local Directory. National Debtline telephone 0808 808 4000 Monday and Thursday 10am to 4pm, Tuesday and Wednesday 10am to 7pm and Friday 10am to 12pm. Outside these hours, there is an answer phone service to request information. The National Debt line provides a free and confidential telephone advice and support service. They also produce their own very detailed self help guide which they will send to you free of charge.

Hire purchase is an option offered for some larger consumer purchases and can be considered as form of secured loan. The finance provider owns the purchased item during the period of repayment and technically you hire it from the finance provider until the last payment is made, whereby you become the owner. Hire purchase is usually offered by dealers