Worried that taking out a loan is more hassle than it’s worth?
Just because you’re asking for something from an organisation,
doesn’t mean you shouldn’t get good customer service. After
all, there are thousands of organisations out there all willing
to lend you money.
As most of us know, the reason for taking out a loan is to pay
for something that you can’t afford at that particular time.
The way a loan works is that you pay an agreed monthly amount
back to the lender for a set period, until the loan is paid off
in full.
Despite what some people may think, there is such a thing as a
‘no hassle’ loan. Our practical advice will help you avoid some
of the common pitfalls and make you realise just how easy the
process of applying for a loan should be:
What types of loan are available?
The two types are secured and unsecured. Secured is where you
borrow on the value of your house. These loans tend to be more
cost-effective, as the rates are normally lower than unsecured,
because there’s less risk to the lender.
How do I ensure value for money?
- Firstly decide how much you’d like to borrow and ideally over
what time period you’d like to pay it back. That way you can
shop around for the best loan quotes.
- Always read the small print. Some loans incur charges, such
as set up fees or imply you should take out their insurance,
which can be expensive.
- Taking out a secured loan (rather than unsecured) will
usually offer much better rates of interest, as the risk is not
as great for the lender.
Do I have to take out insurance?
No – you don’t. However, many lenders may suggest it to you, as
it offers protection in certain circumstances (such as illness)
if you couldn’t cover your re-payments. Also, you don’t have to
use the insurance offered by your lender, as you may find a
cheaper option elsewhere.
If you do decide to take out insurance, remember that it will
increase your monthly payments, so you’ll need to factor that
in to your budget.
What is an APR?
- APR represents the interest you will pay on your loan. It is
the Annual Percentage Rate of charge.
- APRs vary dramatically from lender to lender and the one you
will be offered could be higher than any advertised, depending
on your personal circumstances.
- Clearly the lower the APR, the less interest you will pay on
your loan. However, be aware that some lenders advertise a
monthly APR on their loan quotes, which when calculated on a
yearly basis becomes a lot more expensive.
- Before you sign a loan agreement, your lender is obliged to
tell you what APR you will be paying.
What are the pitfalls when applying for a loan?
- Always make sure you understand your loan agreement, as once
you have signed it, you are legally bound by its terms.
- When looking for interest rates (or APRs) find out if the
loan will be on a fixed or variable rate. Fixed means the
amount you pay will remain the same for the length of the loan,
but variable means that it could change – which means it’s more
likely to go up – and this could affect your budgeting.
- Find out abut other conditions attached to the loan and be
sure that they suit your requirements. For example, you may be
able to take a break from paying for a month or so, or you may
want to pay off the loan early. Check that you do not have pay
a penalty for such options.
Do I have any legal protection when taking out a loan?
Yes – to a certain extent, as all personal loans are protected
by the Consumer Credit Act 1974. However, as already stated,
once you have signed a loan agreement, you are expected to
fulfil your agreement.
The Act contains regulates how money is lent and cover you for
an unsecured loan up to =A325,000. If you use a reputable broker
it is highly unlikely that you will need to complain about your
lender.
Never bury your head in the sand if you get into difficulty.
Reputable lenders practice good customer service, but remember
the onus is on you to keep to your loan agreement. If you ever
find yourself not able to meet the repayments, contact your
lender immediately. They should be able to help you, by
re-visiting your repayments. However, there may be a charge for
this.
Who should I borrow from?
With so much choice on the market these days, it’s always
advisable to use a broker, who can shop around to find the most
competitive tailor-made deal for you.
About The Author: Clive Willis has written widely on personal
finance subjects. His latest work providing information about
loans can be found on http://www.finance-team.co.uk/
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