How
do I choose a loan? Secured or unsecured?
Loans
basically fall into two main categories. Secured and Unsecured.
A secured loan means that the loan is "secured" against
something you own, and this is nearly always your home or other
owned property. This means that the lender has the right to
force the sale of your home (to recover their funds) if you
don't pay off the loan in the manner initially agreed. This
has the additional complication that, if you have a mortgage
then the loan will also have to be agreed by whichever lender
your mortgage is held with. If your mortgage represents a large
proportion of the capital in your house, then they may well
not agree to this. On the other hand, if the value of your house
is far greater than the amount of your mortgage, agreement should
be forthcoming.
What
about extending my mortgage?
Good question! If, as described above, your current mortgage is
not too large with respect to the value of your home, it may actually
be cheaper to ask your main mortgage lender to lend more you more
money, making your mortgage larger, but possibly easier to repay
as mortgages tend to be repaid over longer time periods. Bear
in mind, though, that even though the rate may be lower, if the
repayment period is longer, the overall amount repaid at the end
of the loan may actually end up being larger overall. Again, a
mortgage is a form of secured loan so your home or property is
at risk if you don't keep up repayments.
Tell
me about interest rates....
Not surprisingly, the lower the interest rate the better, BUT,
watch the small print. The better your credit rating, the lower
the rate you will eligible for. Some of the best deals advertised
are only available to those with the best credit record. Also,
watch carefully for early repayment penalties. If you think that
you might have enough money to pay the loan off at some time before
the end due date of the loan, you may get a nasty surprise if
the lender demands their "early repayment penalty",
often hidden in the small print! The lowest rate loan may have
a steep early repayment penalty, but there are some great rates
on loans without any penalties..... choose carefully. Also check
to see if a fee is charged to arrange the loan. This can be quite
substantial. There are plenty of loans out there with no repayment
penalties and great rates.
Which
repayment period should I go for?
The shorter the better. It's always tempting to go for the lowest
monthly repayment, which often comes with a longer repayment period,
but remember that this means you'll be making more payments, so
the overall cost over the term of the loan will be considerably
higher. Choose a monthly repayment that is comfortable to live
with so that you still have some spare cash for emergencies.
Will
I need Insurance or Payment Protection?
Only you can make that decision. This is often offered by the
lender to cover the repayments if become ill or are made redundant
from your job. You may feel more comfortable if you have this
protection, but the insurance offered alongside the loan may be
very expensive. Look around to see if you can obtain this insurance
cover more cheaply as a separate item. Also check the small print
very carefully to check which illnesses or circumstances are covered
and which are excluded.
Any
other tips?
Yes. We're not afraid to say it one more time.... READ THE SMALL
PRINT.... we know it makes very boring reading, but you may well
spot something nasty hidden in there and you'll be very glad you
took the time to find out before signing on the dotted line!
Happy
loan hunting!
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admin@uk-loan-guide.com
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