If you’re not careful and if you’re a novice at borrowing money, loans can be a pain in the neck. They come in many forms and types that it can be confusing to choose one that is right for your needs. But don’t panic. Getting the right loan may not be easy but we’re here to help. We’ve created this quick guide to loans to tell you everything you need to know about the financial product.
Two major categories of loans
There are two major categories of loans. Most loan types fall into these two categories. There are the secured loans which are loans that require collateral or security and there are unsecured loans which doesn’t need any collateral.
Secured loans are harder to get approved for because of the collateral requirement. But the upside, you can borrow more money with secured loans. Examples of secured loans include mortgage, which is secured on your home, car loans secured on your vehicle and logbook loans.
Unsecured loans, on one hand, are more accessible and easier to get approved for. But the loan amounts are significantly less than what a secured loan may offer you. Unsecured loans are usually ideal for quick cash personal needs like car repair, overdue bill, etc. Examples of unsecured loans include payday loans, doorstep loans, credit cards, guarantor loans and most types of personal loans.
Places to get loans in the UK
If you’re in the UK and you’re of legal age, you can avail a loan from different place. If you have a good credit score, for instance, you can go directly to your bank and apply for a personal loan. There are also internet loan providers. Rather than go to high-street banks and building societies, you can go online and look for trusted provider to apply for a loan. Borrowers with bad credit will usually find a suitable loan online.
Cost of loans
When you’re looking for a loan, one of the key concepts you’ll stumble upon is APR. It stands for annual percentage rate, the financial concept used by providers to advertise their loan products. It basically represents your loan’s cost inclusive of fees and related charges in a year. Take for example logbook loans. Providers offering this type of loan advertise their deals with a representative APR of 400% on average. That gives borrowers an idea how much the loan may cost in a year. That also means that if you want to find the cheaper deal, you should go looking for one with the lowest APR.
The Credit Score Factor
Interest rates vary from one loan type to another. Secured loans with long repayment terms usually come with lower interest rates while high risk loans such as logbook loans come with high interest rates. Another factor that may affect your loan’s cost is your credit score. If you have a good credit score, you’ll be able to get the best rates available. If you have a poor credit score, on one hand, your loan may be more expensive because of the higher interest rates.
Consumer Credit Act
If you were going to take out a loan, it would help to know about the Consumer Credit Act. The act offers protection for borrowers. It requires lenders to disclose full details in written form about the true interest rate of your loan. It also gives the borrower a period called the “cooling-off” period giving you time to think about going for or cancelling the loan agreement.