Loans Guide

With the many different types of loan available today it can sometimes be confusing as to which loan is right for your specific circumstances. Below is a quick guide to help you decide which type of loan is best for you along with any pitfalls that may exist.

Personal (Unsecured) Loans

Personal loans are generally used for small loans over fairly short periods. A lump sum is given to the customer from the provider; the customer then agrees to pay regular repayments over a specified period (the term). Interest is charged by the provider, which is taken into account when the monthly repayment is calculated. Usually lenders will charge different rates of interest (APR) based on the amount borrowed, the term of the loan, and sometimes your credit history.

Debt Consolidation Loans

Debt Consolidation Loans allow existing debts to be cleared by consolidating them into a larger loan that can be repaid over a longer period, reducing total monthly repayments. Since the time to repay such a loan will take longer it is likely that the total amount of money paid back will be larger.

Adverse Credit Loans

Adverse Credit Loans are aimed at people who have not got a good credit history. Some lenders specialise in providing loans to people with an adverse credit rating, but they are perceived as an increased risk to the lender, and may well incur higher interest charges and fees than standard loans.

Before Applying for a Loan

The following points should be considered before taking out a loan. All the information you need to answer such points can be found in the ‘details’ page for each loan.

• Typical APR

If a provider uses the phrase ‘typical APR’ to describe the interest rate of a loan, then the actual APR they will offer may be changeable, and will be subject to status based upon a person's credit history.

• Breaks

Some loans allow customers to take breaks from making payments, either when the loan is paid, a deferment break, or during the loan period, known as repayment breaks. It should be noted that although a repayment-free window may be convenient, interest is generally charged during these periods, and they may incur fees leading to a greater overall cost.

• Same day loans

It is sometimes possible to get the money for a loan on the same day that you make an application. Convenience often comes at a cost though, and there can be a hefty arrangement fee for taking advantage of a same day payment.

• Early repayment

Sometimes it is possible to pay off a loan (settlement) before the end of the term. Doing so reduces the amount of interest you pay on the loan, and thus paying it off early can reduce the overall cost. Be warned – some lenders will apply a charge for early repayment.

• Payment protection

This is an insurance policy that you can take out from most loan providers at the time of the loan. It covers you if you are unable to make repayments for a number of specified reasons, including redundancy, sickness or an accident. There are usually terms and conditions involved in the policy, and some lenders offer a number of different policies, which you should check for suitability. Adding payment protection insurance to your loan will increase the monthly repayments. You can also take out a policy with a stand-alone insurer, who often offer a more flexible approach – for instance allowing you to cancel the policy before the end of the loan. Whether you take out a policy with either your lender or from a stand-alone provider will depend on your personal circumstances, and how secure you feel in terms of health and employment.