The types of loan available depend on your financial circumstances. The list below gives an overview of the most popular types but it's not comprehensive and you might be better off considering other options than a loan.
If you're in financial difficulties talk to citizen's advice or a debt and money advice service before you commit to any further borrowing!
If you are a UK homeowner or are paying a mortgage you could consider a secured loan.
Why opt for secured?
It can be easier to get a loan on a secured basis if you've had problems in the past. These can be less of a problem with a secured loan. You're not guaranteed to get a loan but lenders are often more likely to be able to assist if the loan can be secured on property.
When you are looking for finance, it is advisable to compare the interest payments you will be charged ( the APR - Annual Percentage Rate ) from several lenders as this will help you to determine how competitive they are.
In general, the more you borrow, the lower the interest rate will be. But this shouldn't encourage you to borrow more than you need!
If you are offered a 'fixed' interest rate, it means your payments will remain the same throughout the term of your secured loan, regardless of any rises or falls in the bank's base interest rate.
Knowing your monthly payments are going to remain the same can help with your budgeting.
If the secured loan has a 'variable' interest rate your monthly payments may alter with any changes to the bank's base interest rate.
Ensure that before you take out any secured loan that you know what your monthly
payments will be, for how long , whether they are fixed or variable and how
much you will pay back in total.
Lenders can find what's right for your needs. Apart from competitive APR's (annual percentage rate), some lenders also have options available which can include:
When choosing the right finance you need to be aware of the differences
between the many options offered, and which will suit your circumstances
Do you need a large or small loan over a short or long repayment period? Which loan suits a houseowner, or somebody with a bad credit history?
The choices become much easier when you know the differences.
This is secured on your property by the lender. This means that the lender has little risk of losing any money and so can offer a lower APR (Annual Percentage Rate) than would be available with an unsecured loan. In the case of a good credit history, our lenders can often offer secured loans to a higher proportion of the equity available in the property.
It can be easier to get a loan on a secured basis if you have an adverse credit history. Past problems such as arrears or county court judgements (ccj's) can be discounted to an extent.
In all cases with secured loans you should be aware that your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.
An unsecured loan can cost more in repayments but does not carry as much risk to your home as a secured loan. If you don't repay it, the lender can't take your house off you without going through an extensive legal process - putting a charge on the property. For this reason, it can be difficult to get unsecured loans if you've had problems in the past with late or missed repayments on loans or credit cards.
The main loan option open to a tenant is an Unsecured/Personal Loan. This is a loan which is not secured on property, unlike a Secured or Homeowner loan.
An Unsecured loan allows you to borrow money without offering security in return to the lender, but you are still liable to repay the loan. Because of the risk to the lender, a Personal or Unsecured loan is generally more expensive than a Secured loan and it can also be more difficult to find if you've had problems with your credit record, or if you've just started work.
Your loan application will be judged on your ability to repay the loan - your earnings and bank and credit history will be important. However, there are lenders who specialise in offering competitive rates to tenants and those with a bad credit history.
On the positive side, an Unsecured Loan can be arranged with the minimum of paperwork and can also be paid out much more quickly than a Secured Loan, as there is no need to wait for a survey or valuation of property.
In some cases, it's possible to get the money paid out within a day or two. The maximum Unsecured Loan is £25,000 with repayment terms usually from 12 to 84 months.
If you are a council or private Tenant, renting your house or flat or living with parents you may have often found it difficult to find an unsecured loan.
Find a fast response loan if you're:
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Interest rates - variable or fixed?
When you are looking for a loan, Secured or Unsecured, you should ensure that
you don't borrow more than you can comfortably afford to repay.
It is advisable to compare the interest payments you will be charged (the APR - Annual Percentage Rate) from several lenders, as this will help you to decide how competitive the loans they are offering are.
Generally, the larger the amount you borrow, the lower the interest rate will be.
Ensuring your monthly payments remain the same can help with your budgeting, so if the loan you are offered has a 'fixed' interest rate, it means your payments will remain the same throughout the term of your loan, regardless of any rises or falls in the bank's base interest rate.
If the loan has a 'variable' interest rate then your monthly payments may alter with any changes to the bank's interest rate. This can be an important factor at the moment, with the rising interest rates.
Before you take out any loan make sure that you know exactly what your monthly payments will be, for how long, and whether they are fixed or variable, and how much you will pay back in total.
Think carefully before you take on extra credit or consolidate your loan - it may be tempting to borrow more, but you should always carefully work out your budget before committing.
Ask yourself how you'd cope if your financial circumstances changed, for example if you lost your job, had your overtime or bonus reduced or became ill? Is there an alternative to a loan - can you reduce your outgoings and/or increase your income?
Over Extended Credit
Unlike our grandparents' generation who were generally reluctant to borrow, buying today instead of having to put it off until tomorrow has become an accepted feature of our society. However, it is easy to become financially over-extended with
car loans, overdrafts, unexpected bills and changes in personal circumstances - illness, birth of a child, an accident, business failure or unemployment.
A recent survey revealed it only takes a 10 % drop in income to change what was a manageable credit commitment into a debt problem.
The key to all debt problems is prompt action, act now before things get worse - it's tempting to ignore statements and letters regarding your debt problem in the hope that they'll go away or 'something will turn up' but early action can make any problem much easier to resolve.
Prioritising your debts is the first step.
Priority debts are those that require the most urgent attention - non payment
can result in you losing your home or essential services :
mortgage, secured loans, rent arrears, heating bills, telephone and car (if essential for work), court fines, income tax, council tax, maintenance payments.
Mortgage Arrears - not making your mortgage payments puts your home at risk. The mortgage provider will contact you, usually by phone and then in writing, to warn you of the consequences of non payment. They will then refer the case to lawyers and eventually issue a court summons. The longer you leave it the more the arrears and the problem builds. If you decide to consolidate the arrears can be incorporated into the loan and make your monthly repayments more affordable.
Council Tax Arrears - if you don't pay your council tax,
the council will apply for a 'liability order' in the courts. They can then
use bailiffs to get the money from you. This can be by removing items of value
from you, or by deducting money from your wages or benefits.
If you are on a low income or unemployed you may be entitled to council tax benefit - check with your local Benefits Agency. The Child Support Agency can also authorise your employer to make direct deductions from your wages, or apply for a liability order.
If you don't act quickly some creditors are able by law to:
Repossess your home or business premises, or evict you from rental properties
Cut off electricity, gas or water supplies to your home or business
Instruct bailiffs to remove goods, vehicles or equipment from your home or business
Ask the magistrates to sentence you to prison - the courts are unlikely to sentence you to a prison term if you have not paid because you don't have enough money. Imprisonment can result from non payment of court fines, council tax or maintenance. You cannot be sent to prison without a hearing.
County Court Judgements
Court action can lead to a CCJ being registered against you. This will go on file and subsequently affect your credit rating. Bailiffs can be used to enforce payment of CCJs.
Non-priority debts include:
bank overdrafts, credit-card arrears, catalogue debt, store cards, non-essential hire-purchase.
Calculate how much money is available to you each month - all income from you and your spouse, any contributions from any adult living with you, benefits, overtime ( if regular)
Now list your monthly spending.
The figures become much clearer if you group them under different headings -
Finance : mortgage payments, secured loans,
Household expenses :council tax, electricity, gas, water rates, TV license
Living expenses : food, toiletries, cleaning materials, etc
Travelling expenses : car, train fares etc
Children :school dinners, clubs etc
If your monthly outgoings exceed your monthly income you need to act as soon as possible to regain balance of your finances. Basically, you need to either decrease your spending or increase your earnings. The essential bills need to be your priority.
Before you consider taking out a loan, it's always worth pausing for a review of the situation - A loan may not be the best way forward. You could consider a number of options such as an informal arrangement with your creditors or an IVA. If you are unsure of your options, talk to citizen's advice or one of the many debt help charities who will be able to give you more information on alternatives to borrowing.
A Debt Consolidation Loan is a single loan that can be used to pay off existing debts - personal loans, credit cards, overdrafts,student loans or unpaid bills. Credit cards and store cards have high-interest rates which can mean heavy payments every month. A debt consolidation loan can relieve your financial pressure and enable you to maintain and rebuild your credit rating.
Refinancing by incorporating all your debts into one loan - a Debt Consolidation
Loan - can reduce your monthly payments and enable you to take control of your
finances. Mortgage or loan arrears can then be cleared when you consolidate
with more affordable monthly payments - clearing unpaid debts, avoiding court
action and preserving your credit status.
You need to be sure that the interest rate and the repayment term that you agree to are manageable.
You should also make sure that you review your income/spending pattern so that you don't run into the same problem in the future!
Reduce monthly payments
It can be possible to significantly reduce your monthly payments with a Debt Consolidation Loan, sometimes by up to half. Making one monthly payment can be much more convenient and easier to manage than making multiple payments.
The downside is that the consolidation loan will usually run for longer and end up costing you more in interest.
Also you should think long and hard before switching unsecured debt to secured - if you're uncertain then make sure you take advice from an independent source such as one of the debt charities or the citizen's advice bureau.
The phrase ' YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.' isn't there for decoration - you really can lose your home if you don't meet your repayment obligations!
Debt Help and Advice
The key to solving a debt problem is prompt action - act today before the situation gets worse. Don't ignore creditors and threatening letter or final demands hoping they'll go away - they won't - unless you do something about it!
Turned down for a loan
If you have applied for a Debt Consolidation loan
but have been turned down due to adverse credit or insufficient income, and you have a disposable income of £100 -125 per month and a total of unsecured debt of £5k, then a professional Debt Management plan could be a way for you to sort out your debts.
Outstanding debts such as credit cards, store cards, catalogues, personal loans, overdrafts, repossessed property debt, mobile phones (in some cases) and Hire Purchase (in some cases) can be settled under a Debt Management plan, before your financial situation gets out of control.
What is Debt Management?
Rather than dealing with all your creditors yourself, a debt management company does this for you. They talk to your creditors and try to get the amount you owe reduced and interest frozen. You make one monthly payment to the debt management company and they arrange for your creditors to get a share.
Most creditors go along with this as it shows that you are serious about dealing with your debt problem. They will often accept a partial repayment as it means that they don't have the extra expense of collection or legal proceedings with the risk of getting nothing at the end.
Many people appreciate the peace of mind that debt management brings as the threatening letters and phone calls from creditors soon come to an end!
Don't forget though, that a debt management company will charge a fee to help you. If you're unhappy with the idea of this, there is no reason that you can't negotiate with creditors yourself - contact your citizen's advice bureau for more information on this option.
The Individual Voluntary Arrangement, otherwise known as IVA, is basically an alternative to bankruptcy and is governed by the Insolvency Act of 1986.
With an IVA you make a reduced payment each month to your creditors for a reasonable period of time, generally up to a maximum of 60 months. In some cases, you can pay a one-off lump sum - this is called a Full and Final Settlement IVA. This is a legally binding arrangement with your creditors which enables you to repay a proportion of your debt in a one off lump sum payment.
An IVA is often preferable to bankruptcy by your creditors because the fees involved in bankruptcy petitions can be high, leaving little left to settle any outstanding debts.
An IVA is only possible if you can afford to make regular repayments to your creditors for a fixed period of time. You generally need a disposable income of £250+ per month and owe more than £15,000.
We can connect you to professional debt managers who will carefully assess your personal financial situation, and undertake all the creditor negotiations on your behalf. They will then prepare a proposal for your creditors and seek approval for your IVA.
Once your IVA has been approved you are legally protected from your creditors taking further action against you for recovery of the debt, or adding further interest or charges to your accounts. Your repayments are the same every month - there will be no added interest surprises.
When you have made your final payment all remaining debt is then legally cancelled, including any remaining debts which were included within the arrangement by your creditors. Most importantly your professional status will not suffer, as the agreements are made privately with your creditors, unlike bankruptcy.
Payday loans are a relatively recent phenomena in the uk and have become a popular way of dealing with short-term cash flow problems. The borrower can obtain up to £750-1000 for a short period of time, generally a couple of weeks or a month until the next payday - hence the name. Interest is usually charged in the form of a flat rate payment which can be collected with the initial amount borrowed.
The big downside with a payday loan is that although the charges can appear reasonable in the first instance, they often equate to thousands of percent a year when viewed as an APR.
If you can't repay the initial amount on time, the loan can sometimes be 'rolled over' or deferred but this comes at an extra cost so make sure you understand what your options are at this stage. Don't take out a payday loan if you have any doubt that you'll be able to repay it. Payday loans can be fine if you just use them as a 'one-off' for an emergency but they can work out to be a very expensive way of borrowing if you keep using them.
These concerns and others have been highlighted in a recent report from the OFT which found that there were problems in the way that payday loans were marketed and operated. The firms involved were given 12 weeks as of March 2013 to take corrective action.
More on payday loan issues (BBC Website - opens in new window)
If you find you have to keep borrowing money whether from a payday loan company or other lender, you need to address the underlying issues and either
cut your expenditure
or try and
earn extra money
or preferably do both!
We don't provide payday loans ourselves or act as an introducer for any payday loan company but this page may feature externally created advertisements, the content of which is beyond our control and which should not be taken as being recommended or endorsed by us. In particular, you should consider whether a payday loan is suitable for your needs:
Payday loans are not for everyone and they are not a long term solution to debt problems. They are meant to be used as a short term 'emergency' solution if you can't raise cash elsewhere.
You should consider options other than a payday loan if you think you may have difficulty repaying on the due date or you might need a loan for more than a few weeks.
If you aged are over 18 and earning more than £750 a month in full-time employment you may qualify. All you then need is a bank account with a debit card for you to repay your payday loan.
The lender will need the following information as a minimum when you apply
for a payday loan:
name and address
date of birth
contact telephone numbers and email
work and payroll details
The key to solving a debt problem is prompt action - act now before the situation gets worse. We suggest you take advice if you are experiencing problems - contact one of the many debt charities which can help or talk to your local citizen's advice bureau.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME - YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.