Understanding Loans

Unsecured loans checklist

Personal Loans are here to fulfill your Personal Desires: Introduces the key issues when choosing a personal loan.
Unsecured Personal Loans. When you are your guarantor and not your home: Interested in an unsecured loan? This article is good background reading
Determining How Much Money You Need to Borrow: How much to borrow is always a key decision. This article gives some good general advice
How Your Credit Rating is Determined: Your credit rating is important. This article explains how credit ratings work, their effects and what to do if the score is based on incorrect information.
Loans. How to select a secured or unsecured loan.: All loans are either secured or unsecured. This article explains the difference and the factors which determine which to select.

You need to look at how much interest you will pay over the course of the loan. Have a look at the TAR which means the total amount repayable. The lower the TAR the better, other factors may mean that you do not pick the absolute cheapest loan on offer. The most important thing to consider when choosing a loan, however, is the TAR.

Is the rate of interest fixed or variable? Most companies still offer fixed rates on personal loans. This option is probably the best as you can then be certain about how much you will have to pay in future.

Are there penalties for repaying the loan early? Seven out of 10 borrowers repay their loans early, but are penalised by their lenders for doing so. Lenders can charge an early repayment penalty of up to two months interest. If you think there may be a possibility that you will repay your loan early, look for loans that do not charge early repayment fees.

It may also be worth checking to see if you can make lump sum overpayments during the course of your loan.

Not surprisingly, this type of flexibility costs money and you will probably end up paying a higher interest rate if you go for the flexible option. Consider this option very seriously if you think you may be able to repay early.

Make sure that you can meet the monthly repayments. It is often very tempting to reduce these monthly payments by increasing the period of the loan, by doing this you will end up paying a higher total interest bill as a result.

Secured loans checklist

All of the points in the checklist above apply here. Once again, the TAR is the most significant point. Some secured loans charge extortionate rates, avoid these!

Have you heard of the lender? Be careful as some of the lenders in this area are cowboys. It is best to only go with a lender that you have heard of and which has a good reputation. If you have seen the lender advertising on daytime TV, that is probably a minus point.

Are there any hidden costs? This does apply to both secured and unsecured loans but you will want to be especially cautious about it with a secured loan. There is the potential for costs to spiral out of control with a larger loan.

Cash Back Loans.....Be Cautious

What a great idea these sound like! Basically when your loan comes to an end, you will get some of your interest payments back, perhaps 25 per cent

There are normally catches though. For instance, you will not normally get the cash back if you pay off your debt early. This also applies if you are late with one of your payments.

You will normally only be offered cash back if you also buy PPI.

The final word on cash back is to be cautious.