Loans: Some Thoughts...
There's a vast array of loans out there, cheap loans included, which is why it's all the more important to ensure you choose the right one for you. Make the wrong choice and you could be left forking out a lot more than you bargained for.
If you plan on taking out a loan from a high street bank or building society, you can expect to be able to receive up to £25,000, pay a rate of interest on it which is fixed, along with a length of time of 3-10 years in which to reimburse it. These are normally known as personal loans.
There are also cheap loans that are available for certain groups of people, for e.g., homeowners, car purchasers or graduates.
If you plan on taking out more money and repaying over a longer period of time (up to 25 years), then it's normal for your debt to be held against your home. For this reason, these are normally referred to as secured loans. It’s essential, though, to keep in mind that if you take this route, you run the chance of losing your property if you don't keep up with your debt repayments.
Whereas the interest rate on personal loans is usually fixed, the rates on secured loans can differ depending on the particular lender you go to.
Though longer loans may very well attract lower interest rates, it doesn't necessarily make them cheap loans. In the long run, the interest can add up and you could end up paying more. For instance, if you took out a £5000 loan with an interest of 10% over 3 years, you'd end up paying about £800 interest. If you took out the same £5000 at a 5% rate of interest to be paid over a period of 10 years, then you’re looking at about £1360 interest.
It's therefore wise not to assume it’ll be a cheap loan in the true sense. Look at the accumulated cost of interest over the life of the loan before deciding whether it really is for you.
In order to secure a cheap loan or any loan for that matter, a healthy credit score is advised. To keep it at that level, you must ensure you’re on the electoral role, that your debt repayments are current, and that you have little borrowing that's outstanding.
Even if you have a low credit score, you could possibly still secure a loan. However, the interest on it can be pretty steep.
If your financial situation has seriously come unstuck, it might be best to first seek the advice of a debt counsellor or debt charity before considering taking out a loan.
Good luck -- whatever you decide.