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Looking to buy some new furniture, car or even a holiday ?
We have access to a number of lenders all willing to lend you the money - it's never been easier to get a loan. But please bear in mind you will have to pay interest on what you borrow which means that you'll pay back more than you actually borrowed.
If you would like to know more before applying beforehand please find our loan guidelines, types of loans available and our jargon buster below:
Background: Here, we explain how loans work, how they differ and how to borrow sensibly. If you're looking to borrow money to buy a home, then see our Mortgages section.
Types of borrowing
There are a number of ways you can borrow money for the short to medium term.
These can be:
- Bank overdraft
- Personal loans
- Credit cards, store cards and in-store finance
- Other borrowing
We cover mortgages in a separate section – see Mortgages.
When you apply to borrow money in any of these ways, you'll be asked to complete an application form. Your answers help the lender to predict how big a risk they're taking by lending you money. This is called a credit score.
You'll be charged interest on what you borrow, usually monthly. The interest rate varies depending on the type of loan. You can use the APR (Annual Percentage Rate) to help you shop around for the best deal. APR tells you the cost of the loan taking into account the interest on the loan and other charges. All lenders have to tell you what their APR is – see What is APR?.
Top tips:
- Think about whether you can afford the repayments from your household budget.
Think about whether you can afford the repayments from your household budget.
Don't sign until you've considered all the options.
Credit scoring
What is credit scoring?
When you apply for a credit card, current account, personal loan, hire purchase (HP) agreement or mortgage, or any other form of credit, the lender will usually credit score your application. This helps the lender decide whether to accept your application and, where relevant, helps set your credit limit and interest rate.
Credit scoring works by awarding points to the information you provide on your application form and to the information recorded on your credit report (held by a credit reference agency). The questions on an application form are designed to help the lender to assess your creditworthiness. Credit scoring uses all this information to try to predict how big a risk the lender is taking by allowing you to borrow money. It often helps them decide:
- whether to give you a credit card or loan;
- what credit limit to give you; and
- what interest rate to charge.
If your total score reaches the lender's pass mark, they will probably offer you credit. If you don't score enough points, the lender may:
- turn down your application;
- offer to lend you a smaller amount than you were hoping for; or
- charge you a higher rate of interest.
Each lender has their own scoring system, but you'll generally score the most points the longer you've been in a job; if you own your own home and/or have lived for a while at the same address; if you're middle aged rather than younger or older; and if you're married. However, you certainly don't have to be all of these things to apply for a loan.
The information on your credit report is very important and having a good credit history will improve your chances of getting credit. Someone who has had a credit card and pays all their regular bills on time may score more points than someone who's new to loans. On the other hand, it can count against you if you already have several loans and credit cards, or if you've made lots of different applications recently.
If you're not on the Electoral Roll the lender might refuse your application. This is because lenders use it to confirm your name and address.
What if they turn you down?
Lenders won't go into detail about how their scoring systems work, but if you are refused credit you can ask them to tell you the main reason – which could be because of credit scoring or because of information on your credit report. They have to tell you the name of any credit reference agencies they used.
What is APR?
APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR includes important factors such as:
- the interest rate you must pay;
- how you repay the loan; the length of the loan agreement (or term); frequency and timing of instalment payments; and amount of each payment;
- certain fees associated with the loan; and
- premiums for payment protection insurance that the lender chooses to make compulsory.
All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, shop around.
Example 1:
If you borrow £1,000 for one year at 20% interest, and at the end of the year you repay a lump sum of £1,200:
- you will be paying an interest rate of 20%; and
- the APR will also be 20%.
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Example 2:
If you borrow £1,000 for one year at 20% interest, and pay throughout the year in equal monthly instalments (12 x £100 = £1,200),
- you will still be paying an interest rate of 20%; but
- the APR, however, will be roughly 40%.
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Example 2 is more expensive because you are paying back the £1,000 gradually throughout the year. In Example 1 you have the benefit of being able to access the £1,200 for the whole year, which you could invest and earn interest on. By paying in instalments you're losing out; this increases the cost of the loan - hence the higher APR.
Questions to ask the lender
If you find a deal with a low APR, ask the lender the following questions:
- Does the interest included in the APR vary, or is the rate fixed?
If the rate is variable, your repayments could go up or go down. If the rate is fixed, your repayments will stay the same.
- Are there any charges that are not included in the APR?
This could include charges for services such as optional payment protection insurance.
- If so, make sure you understand:
- what the charges are;
- whether you really need the services offered;
- how much you would have to pay; and
- when you would have to pay.
- What are the conditions of the loan or credit and do they suit you?
For example, do you have a choice about how and where you make the repayments? If you suddenly have spare money, can you pay the loan off early - without penalties?
- Can you afford the monthly payments?
A more expensive loan (with a higher APR) could have lower monthly payments if they are spread out over a longer period of time. That might suit you better if your budget is tight, even though you would pay more in the long run.
Top Tip:
- Check the APR. All lenders have to tell you what theirs is, so you can compare like with like.
- Remember the APR works best as a tool for comparing the cost of loans when loans are considered on a like-for-like basis (for example loans that run for the same length of time).
Other things to consider
As well as the APR, you should consider other aspects of the loan before deciding whether a particular loan is right for you.
The length of the loan agreement
You may be considering two loans that have the same APR but run for different lengths of time. As the APR is the total charge per year, you will have to pay more on the loan that runs for longer. Similarly, a loan with a lower APR is cheaper overall than a loan with a higher APR on a like-for-like basis.
You should also consider for how long you wish to commit to paying back the loan – would you feel comfortable having the debt hanging over you for a long period of time?
Can you afford the payments?
The APR gives you information on the cost of a loan, but it doesn't tell you about the payments you must make. With some loans you will have to make payments weekly, monthly or once a year. And some do not require any payment until the end of the loan, when you will be required to pay off the whole loan in one payment.
Think carefully about when you will have to make payments and whether you could afford to do so.
Your payments may vary if the interest rate charged on your loan varies (called a variable interest rate). You should check if the interest rate on your loan varies and whether you can afford the payments if the interest rate rises.
What if things go wrong?
The APR does not include costs that may become payable if things go wrong, such as charges for late or missed payments or for paying off the loan early. You should consider these charges carefully.
"Let us search the market to find the most suitable loan at the most competitive rates – for you"
We offer a no-nonsense first class service with an extensive lender panel, we search the whole market to find the best possible loan at the most competitive rates
This is an example of how we can help a client consolidate their debts into one simple affordable monthly repayment.
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Credit |
Amount |
Monthly repayment |
|
Credit Card |
£8,000 |
£240 |
|
Credit Card |
£4,500 |
£135 |
|
Unsecured loan |
£5,400 |
£116 |
|
Existing secured loan |
£16,500 |
£196 |
|
Store card |
£2,600 |
£130 |
|
Total |
£37,000 |
£817 |
|
Secured loan |
£37,000 |
£346.54 (7.9% APR)
Over 180 months |
The majority of our clients are looking for debt consolidation and the above is an example of our average debt consolidation loan. We could help save £470 per month (£5,640 per year) by consolidating all debts into one simple, affordable monthly repayment.
Ten Interesting facts about the secured loan market in general.
1. We can offer secured loans for most legal purposes, but debt consolidation accounts for 75% of all loan completions.
2. Britain's personal debt increases by £1million every four minutes (source: creditaction.org.uk)
3. Our rates vary from 7.9% to 19.9% APR, but with a typical rate of around 12.9%
4. More than 20 million Britons are in debt, according to a recently published report by Mintel
5. The average time to complete a secured loan application is two weeks from receipt of the credit agreement, the fastest we have completed in 6 days!
6. There were 20,461 individual insolvencies in England & Wales in the fourth quarter of 2005 on a seasonally adjusted basis. This was an increase of 15.0% on the previous quarter and an increase of 57.1% on the same period last year.
7. Grant Thornton says that UK consumers are the most over-indebted in Europe.
8. If you count all the secured plans available that we can offer, we have 426 different possibilities – proving that we can help you in virtually every circumstance!
9. The average wedding now costs £16,000, yet 45% - some 117,000 nationwide - have no financial planning to pay for the big day, a study by stockbrokers, Brewin Dolphin Securities found. (source creditaction.org.uk)
10. Two fifths of mortgagors have secured debts of over £90,000, up from one fifth in 2004.
Some of our options include:
Secured Loans:
- Rates from 7.9% APR
- Terms available from 5 to 40 years
- Buy to let properties up to 70% LTV
- Loans available from £10,000 to £150,000 (or more subject to approval from our lenders)
- Self Certification available to 85% LTV with no proof
- Self Employed clients acceptable up to 100% with proof
- Adverse credit of up to 2 mortgage arrears in 12 months up to 85% LTV available
- Any unsecured adverse credit ignored
- Pre-emption ignored on ex-council properties
- Minimal mortgage history needed
- Fixed, Low start and deferred payment schemes available
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Bridging Loans:
- Rates start from 0.75% per month
- Terms from 1 day to 36 months
- No exit fees available
- Interest roll up scheme
- 100% LTV (with additional security) considered
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Commercial Loans:
- Max LTV 90% on some schemes
- Rates starting from 1% above BOE base rate
- £50,000 to £30,000,000
- Self Cert Schemes available up to 70% LTV
- Interest only available
- 10-30 years terms
- Short term lease hold
- Hotels/B&B up to 80% LTV
- Petrol stations up to 70% LTV
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APR
Annual Percentage Rate. This is the overall cost of borrowing if you owe money on your credit card, loan or overdraft — see What is APR?
Credit scoring
The system your card issuer uses to decide whether to provide you with a card, and to set your credit limit. Credit scoring works by awarding points to the information you provide on your application form and to the information recorded on your credit report (held by a credit reference agency). See Credit scoring for more information.
Direct debits
Payments made on a regular basis (for example, for your gas and electricity) taken directly from your account on an agreed date. You arrange this with your supplier and give them your bank details.
Going overdrawn
If you spend more money than you have in your account, you will go overdrawn (also called being in debit or having a debit balance). Normally, you will be charged interest on the amount you are overdrawn. There could be a monthly or quarterly fee and there may be other charges too.
It's a good idea to ask your bank in advance whether you can go overdrawn, or the bank may refuse to pay your cheques, direct debits and so on and will probably charge you for 'bouncing' these payments. The bank might write to you to tell you that you're overdrawn and charge you for the letter. Also, the interest on your overdraft is likely to be charged at a high rate.
If you ask your bank in advance to allow you to go overdrawn, you may have to pay an arrangement fee but the interest on the overdraft will be lower. And, as long as you stay within the agreed overdraft limit, you should not have to pay other charges.
Going overdrawn without permission on a regular basis could affect your credit rating.
Interest
The amount you'll pay on any money you still owe after the interest-free period each month.
Payment Protection Insurance (PPI)
An insurance policy that can pay an agreed amount if you're unable to earn because of illness or redundancy. This can therefore help to keep up your payments to your lender.
Personal overdrafts
Some banks offer an overdraft facility on a current account. There are two types of overdrafts: authorised and unauthorised.
You can arrange an authorised overdraft with your bank for you to use at any time.
An unauthorised overdraft is when you go overdrawn without the bank's permission. If you don't have sufficient funds in your account, the bank could bounce cheques, direct debits and other payments you want to make. This could also result in expensive charges.
Unauthorised overdrafts often incur a higher interest rate and other charges. Going into overdraft without permission on a regular basis could affect your credit rating or access to credit.
Standing orders
You can arrange for a payment to someone to be made direct from your account on a regular basis (for example, to pay bills or a regular allowance to a student son or daughter). You arrange this with the bank.
Variable interest rate
Interest rates offered by banks and financial institutions on loans or deposits which are liable to change according to circumstances. For example, a movement in the interest base rate set by the Bank of England would usually be an influence.
| Firms lending money to customers must be licensed by the Office of Fair Trading (OFT) under The Consumer Credit Act 1974. The Act requires certain credit and hire agreements to be set out in a particular way and to contain certain information. |
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