A Simple Guide to Understanding Loans
If you are in a tight financial situation, sometimes a loan can offer you that small bit of wiggle room to make an advance. A loan is a straightforward and cost-effective way to borrow much-needed cash. It has been found most beneficial to take out loans of around £1,000 or more.
What is a loan?
A loan is a lump sum of cash that you can borrow from specific financial institutions with the promise to pay the loan back over a given period of time.
There are many different types of loans available, but they usually fall into the category of secured loans and unsecured loans. The difference between these two types of loans is the security provided. For example, a secured loan allows the lender to seize control of an asset that will allow them to recoup the value of the money borrowed in the event the borrower can’t pay them back.
How do loans work?
To take out a loan, the first step in the process is to apply for a loan directly with the lender, this can also be done indirectly through a loan broker. This can all be done online or over the phone from the comfort of your home. You can also contact the lender through the post or set up a personal appointment at the local bank.
Once the lender approves the loan request, the agreed-upon amount of cash will be sent to your bank account.
The next step is to pay back the loan. This is typically done in monthly instalments of a specific amount that will be paid until the balance is paid off.
If you are unable to make a payment for any reason, you will also have to pay a fee and a small increase in the interest rate. The amount that you failed to pay will be added to the payment you are scheduled to make next month.
You can find out more about what happens when you are not able to pay back a loan here.
What can a loan be used for?
The money you take out in a loan can be used for whatever pressing financial matter you may face. But there are also specific loans that can be taken out to purchase a car, property or other specific things.
For example, you can take out a mortgage if you are planning on buying a property. In this case, the property itself acts as security for the lender to possess if you are unable to pay back the mortgage. I would recommend you seeing fast non status bridging loans.
The pros and cons of getting a loan
As you may imagine, there are many good reasons to take out a loan. But there are just as many reasons (if not more) not to rely on financial aid in the form of a loan if you find yourself in a tight financial situation.
Pros
Good idea for long-term borrowing
Typically, interest rates are fixed
You can possibly borrow up to £50,000
Cash could be available within 48 hours
Cons
Charges could be applied for repaying early
Your assets will be used as security
Payments are non-negotiable
A good credit score is essential for the best rates
How long do you get to pay the loan back?
You can choose the terms of payments that best suit your financial plan when you are applying for the loan. Typically, this will be a year or even 7 years, but some lenders may allow you to pay the loan back over 10 years.
The longer it takes you to pay back the loan the more manageable your payments will be but you will end up paying in the long run. For this reason, it is essential to consider how you plan to make the perfect balance of paying the least interest possible but still making easily achievable payments each month.
How much cash can you borrow with a loan?
It is possible to borrow anywhere from £1,000 and £25,000 with most types of loans from most financial organisations. Smaller loans are typically restricted to shorter periods of time, usually under 3 years. Larger loans can be paid in longer periods of time, even up to 35 years in some cases.