A Guide to the Best Loans and Rates
Do you need a cheap loan?
Sometimes, we all might need to grab a quick quid or two to help out with our finances, but if you are thinking about taking out a loan, make sure you know what you’re getting into.
Affordable borrowing can help you out from time to time, just as long as you don’t let your debts get out of control.
Here’s a guide on what to look out for in a loan.
What is an unsecured loan?
For borrowing of anything up £25,000, an unsecured loan is the most popular option. You can usually choose a period of between one and seven years to pay back the loan and the interest rate will be fixed for the period, meaning you’ll pay exactly the same amount every month.
To give you an example, say you take out a loan of £5000 and you want to pay it back over three years (or 36 months). If the rate is fixed at 8.1%, your monthly repayments will be £156.25.
Paying the same amount each month means it’s a much better way to budget. However, if you want to pay the balance of the loan of before the term ends, some providers may charge you an extra fee. That’s why it’s always important to study the terms and conditions before you take out any loan.
Most lenders will advertise an interest rate for their loans to draw you in, but there’s no guarantee that you will be offered that rate once you have applied for the loan. If you have a poor credit rating, you will pay a higher level of interest on your loan. Also, if your loan is for a small amount, you could also find yourself pay a bigger rate of interest.
How do I know if an unsecured loan is for me?
For things like a new car or a holiday, an unsecured personal loan is the most advisable option.
Although an unsecured loan means there’s no danger of you losing your house or property, you should always make sure you can afford the monthly repayments before you take out a loan. Falling behind on an unsecured loan could lead to costly legal case being brought against you.
What is a secured loan?
A secured loan is one which is taken out against the value of your house. This means that, if you can’t keep up with the monthly payments, the loan provider can sell your property and take the value of the loan from the proceeds of that sale. Interest rates are lower than for secured loans, but the risks are high. You’ll also pay higher charges on a secured loan.
Depending on what you want to borrow the money for, you must think very hard whether you want to take out a secured loan.
How do I know if a secured loan is for me?
If you are looking to borrow more than £25,000, a secured loan can be a sensible option. You’ll also be able to pay the money back over a longer period of time and the interest rates will be lower than unsecured loans.
A secured loan is also an alternative option for someone with a poor credit rating who is unable to get a competitive deal on an unsecured loan. Whatever your circumstances, always be certain that you can manage the monthly repayments or your house could be at risk.
What are payday loans?
If you find yourself short and can’t wait until the end of the month, a payday loan can help. However, it’s very important that you realise these type of loans are only for short-term borrowing and you must be sure you can pay the money back at the end of the month. Give serious consideration as to whether you really need to borrow the money before going ahead.
Payday loans are usually offered for amounts between £100 and £500 over the space of 31 days. They are not advised for any form of long-term borrow as the annual interest rate may be as much as 4000%. At ePepi.com, we provide independent advice on payday loans so it’s worth checking out our guide before you grab yourself a bit of extra wonga.
What about getting one single loan to consolidate all my loans?
This can be a manageable way to tackle your debts. If you owe several lenders money, taking out one single loan to pay it off will keep all your debt in one place. If you can get a lower rate for that loan than all the different rates you are paying on your other loans and overdrafts, then it may work out cheaper for you.
When you consolidate your debts, make sure you pay off all those other outstanding loans and chuck the credit cards in the bin – you don’t want to be sucked back into running up more debt.
Another advantage of a consolidation loan is that you can spread your existing debt over a longer period, which will make it more manageable. However, this will also mean you end up paying more back as more interest will be added on.
Is payment protection insurance essential?
Payment protection insurance (or PPI) will help pay your loan repayments if you unexpectedly lose your job or are sick for a long period of time and cannot work. Most PPI policies will have a specified period of time during which they will cover your repayments. This is normally 12 or 24 months.
The loan provider will also attempt to add on PPI to your loan. However, if you shop around, there’s a good chance that you’ll find you can get payment protection insurance cheaper from an independent source.
You’ll probably have seen the huge number of adverts on TV about people who have been mis-sold PPI. It’s important, therefore, that if you do take out PPI, you study the terms and conditions carefully. PPI is not always necessary, particularly if you are only borrowing a small amount or if you contract of employment states you will receive sick pay if you are off work for an extended period of time.
Check out ePepi.com’s guide on PPI to see what a policy may or may not cover you for, whether you need it or not and where the best deals are.
What are the alternative ways of borrowing money?
Your bank account will probably provide facility for an overdraft. This could be a convenient solution to short-term borrowing, but the interest and other additional fees can be quite high. Also, if you do go over your agreed overdraft limit, your bank will slap on even more charges, which will plunge you into even more debt.
Other means of short-term borrowing include credit cards. However, high interest rates can mean, that for anything longer term, credit cards can be an expensive way to borrow money.
If you are looking to borrow money at a good rate of interest, you may consider joining a credit union. Their rates are usually competitive and they can provide loans for people with bad credit.
Remember, don’t commit to any loan without doing your homework. Get ePepi on the case and we’ll help you find the best way to borrow money. You can chat to our expert team on [loannum].