Sometimes in life, things happen that mean we need extra cash, with many of us turning to loans to help us to pay for big purchases or life’s unexpected surprises. With so many different loan types available, it can be hard to know where to turn to for help.
Pay day loans
Pay day loans are short term loans that are there to help you with small amounts of money until pay day – usually up to £500. Not only do they carry a massive amount of interest (usually over 1,000% APR) but if you miss a payment then you will see late fees and interest charges mounting up, causing a lot of financial problems.
Secured loans
A secured loan is a loan available to home owners. Their home is offered as security against the loan, meaning that if repayments cannot be made then their home is at risk of repossession. A secured loan is available to people who own their home or who have a mortgage on the home, but there must be enough equity in the property to secure the amount to be borrowed. The benefits of a secured loan is that many lenders will offer a more attractive interest rate, but risking your home is a decision not to be taken lightly.
Personal loans
Personal loans are typically available for amounts between £1,000 to £25,000, and are not secured against anything like your house – meaning they are more accessible to more people. Each lender will have a different criteria for judging loan applications. The interest varies greatly, but it is usually between 3-5%. When applying you will select an amount you wish to apply for and how long you want to pay it back over. You will then be able to see the monthly repayments and decide whether this is affordable for you.
Car finance loans
If you need to replace your car then you might consider getting car finance. Sometimes known as a “hire purchase”, a car loan requires you to put down a deposit and then agree to monthly instalments. The car isn’t completely owned by you until the final payment is made – which means that if you get behind on payments, the car may be repossessed. You also cannot sell your car until the final repayment has been made.
Overdraft
Whilst not called a loan, an agreed overdraft can give you access to money that you need, whether it be short term or long term. Even better, there is no monthly minimum payment against an overdraft, although the charges and rates of interest differ between banks and your personal circumstances. It also means that you see a negative balance when you check your bank account – which isn’t very encouraging.
Mortgage
Very few of us can afford to purchase a house with cash, and this is where mortgages are extremely useful. A mortgage allows you to place a cash deposit on a house (usually 10+%) and borrow the rest of the money from the bank over a 25 year period. Depending on the mortgage you apply for, the amount you pay per month can be fixed or it can increase and decrease alongside the Bank of England’s interest rate.
Credit cards
Credit cards offer a whole host of features, but they can also act as a loan until you can pay off the balance. Credit cards will have a monthly minimum payment – the amount is determined by the outstanding balance on the card. If you miss a payment then you will soon rack up late payment fees and even interest rate hikes if you were on a 0% offer.
Leave a Reply