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A Guide To Applying For A Loan
Wednesday, 03 January 2018

If you have not applied for a loan before, you should count yourself lucky. By not needing a loan, the chances are that you have a good credit rating and are able to afford all expenses. Unfortunately,rates have edged downwards recently and it can be confusing if you find yourself needing to apply for a loan or do something like refinance your student loans. To avoid any confusion,this article provides some information on what to do when applying for a credit loan.


When applying for a loan, it is important to note that there are two different types of loans. The first is the secured loan and the second is the unsecured loan. An unsecured loan is typically used by people who wish to borrow a small amount and will often be available for smaller amounts. The maximum amount a person can borrow with an unsecured loan is £25,000.

Secured loans, on the other hand, are known as homeowner loans and are held against a person's property. This is an unappealing type of loan because it will place your home at risk of repossession if you are unable to maintain monthly loan repayments. The minimum amount available for a secured loan is typically £10,000, but it is possible to borrow up to approximately £100,000 if necessary. The loan size will differ according to the amount of equity available in the property.
When applying for a loan you will find that the rate advertised is not always the rate you will be offered. Advertised rates are considered the "typical rates" of a loan. This means that the loan provider will use a risk-based pricing strategy with at least 66% of applicants being offered the typical rate. The remaining percentage will often be offered a higher loan rate.
It is common that the best rates are offered to applicants with good credit scores. Unsecured loan rates are becoming more competitive, but it is only people with excellent credit ratings that will qualify for the good rates.
As can be imagined, the longer the loan term, the more interest you will pay. The cost of the loan monthly repayments is highly dependent on the amount you are borrowing; however, it is also dependent on the time taken to repay the loan debt. It is possible to reduce the amount of repayment per month by choosing a longer term. However, contrary to popular belief, this can be a more costly option in the long-term as you will pay a higher interest rate.
For example, if you take a loan of £5,000 for a five year term on a market-leading rate of 7.9%, the monthly repayment would be approximately £100. Using this sum, the total repayment being made would be approximately $6,000 with more than £1,000 in interest. If, however, you reduce the loan term to a three year term the cost would be less over the long-term. The monthly repayments in this case would be approximately £150, but there will be an overall repayment of approximately £5,600.
Credit cards may be a more suitable option if you are looking for short term lending. If you need to borrow an amount of money for a period of approximately one year or less, then it may be more beneficial to use a 0% purchase card. Using this type of card, you will have the length of an introductory offer to repay the money owed without any interest rates being applied. Unfortunately, this can lead to temptation to spend more than is required; however, you should try and curb the temptation until you clear the credit balance. While the 0% introductory offer is useful, once the introductory offer has expired credit cards can charge a high interest rate.
A guarantor loan could be a good idea and could really help you get a better deal on your loan. You just need someone to get to take on the loan with you. You can compare guarantor loans here.
Believe it or not, it can be disadvantageous to pay a loan back early. The majority of secured loan providers actually charge redemption penalties for people who repay a loan early. This is because that the lender is missing out on monthly interest if the individual repays the amount before it is due. For example, penalties on amounts under £25,000 are restricted to two months' interest; however, the penalties can be higher for larger loan amounts.
It is essential that you read all aspects of a loan provider's terms and conditions before making any application. This is important because there may be hidden fees, such as administration charges or fees for arranging the loan. Many loan providers have also been known to penalise people for making late payments.
Repayments can be variable and this will be discussed in the terms and conditions. Rates on unsecured loans, however, tend to be fixed; however, the secured loans are often variable making it possible for the interest rates to rise. It is important that you are aware of this issue or you may face problems with the loan provider "hikes up the rate".
Payment protection insurance, also known as PPI, is a significant aspect to consider when applying for a loan. PPI is created to cover the cost of credit card payments and loans if you have been injured at work, are ill and cannot work, or are facing unemployment. The majority of people assume that PPI needs to be purchased from the same institution where you apply for a loan; however, this is not true. In fact, you do not even need to have PPI when applying for a loan.
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