Long Term Loan Planning
Choosing a long term loan deal that%rsquo;s right for you takes some
careful thought and planning. When comparing and choosing loan
deals, many people fall into the trap of thinking that the
lower the APR deal, the cheaper the loan will be overall but
that%rsquo;s far from being the case.
Firstly, when considering a loan that%rsquo;s going to run over many
years, it%rsquo;s important to take into account factors such as how
much you%rsquo;re looking to borrow and whether you want a secured or
unsecured loan. Unsecured loans will usually carry a higher APR
than a secured loan to reflect the greater risk to the lender
but, for smaller amounts of borrowing, the fact that they are
usually paid off quicker means that the cost of borrowing is
likely to mean an overall lesser repayment total than if you
were repaying the loan over a longer period.
The secured loan route does have its advantages in that if
you%rsquo;re looking to borrow in excess of =A325k and wish to repay
that over more than 10 years, the interest rate is going to be
lower as the loan is guaranteed against your property so
there%rsquo;s less risk to the lender. By spreading out the cost of
repayments over a much longer period, this might suit somebody
who want to keep their monthly repayments lower but the overall
cost of the loan at the end might be considerably higher so it%rsquo;s
important to do the maths and work out what the total overall
cost of the loan might be.
In addition, with a secured loan, you need to ensure what, if
any, additional charges you might incur. Some companies might
charge you a fee for administering the loan and you may also
incur penalty charges if you pay off the loan earlier than your
agreement (known as an early settlement or early redemption
charge). Also, if you move house during the term of your loan
agreement, some companies can charge a transfer fee.
Payment protection insurance is also another thing to consider
on both secured and unsecured loans. If you became ill and
couldn%rsquo;t work or you lost your job, by having this protection,
it can bide you time as the insurance company will continue to
make your monthly repayments on your behalf for a
pre-determined period. However, it%rsquo;s important to make sure
that you qualify before you take out this protection as certain
insurance companies won%rsquo;t pay out to self-employed people or
those who are in receipt of benefit so you could find that
you%rsquo;re paying out for something that%rsquo;s not necessary or
applicable to you. Payment protection insurance can also add on
a considerable sum to the overall cost of a loan and, if you do
decide to add it on, be sure to shop around for the cheapest
deal. Many lending companies will try to =EBbundle%rsquo; it in as part
of the loan package they offer you but you%rsquo;re under no
obligation to take it with them or to even take it at all.
However, with a secured loan, you should always bear in mind
that if you can%rsquo;t meet the repayments, your home could be at
risk.
When planning for a long term loan, you also need to consider
things such as whether or not you opt for a fixed or variable
interest rate as that can affect your total repayments. In
fact, there are so many variables, that the best bet is always
to seek advice from an independent financial advisor or a
reputable broker. They can discuss the right kind of deal for
you. The bottom line is, however, to think beyond the APR and
to consider just how much both your monthly repayments will be
and the overall cost of your loan at the end. If you%rsquo;re happy
with both, then it will probably be the right deal for you.
About The Author: Craig C Harrison is a finance writer for the
Long Term Loans website which offers guidance on large and long
term loans. More of his advice can be seen on
http://www.long-term-loans.co.uk/
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