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Facts about loans and borrowing money

Christmas on a loan or credit card
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Whether you’re looking to make a large expensive purchase or want to pay off a few smaller debts creating just one payment, a loan may be the right solution for you. Here are some facts about loans and borrowing money.

Can I apply for a loan?

If you are over the age of 18, have a regular income and are resident in the UK then you should be able to take out a loan. Your options will be greatly increased if you have a good credit record. Banks will look at your credit history to determine how much of a risk lending money to you would be. If you have kept up at least with minimum payments on all loans and credit cards previously taken out then you shouldn’t have anything to worry about.

Types of loan

The type of loan you apply for will depend on the reason you want to borrow the money. There are four main types of loan:

1. Payday loan

As the name would suggest, these are designed to see you through to your next payday if you find yourself a little short. They generally incur a large rate of interest so are best paid off in full when your wages come through. If you’re looking to borrow around £80 -£750 and pay it back soon then this might be the best type of loan for you.

2. Personal loan

Also known as ‘unsecured loans’, personal loans normally involve sums of between £1,000 and £25,000. As they are unsecured, your home or other possessions are not at risk if you are unable to keep up the repayments. However, if you don’t pay the money back then you may be taken to court.

3. Secured loan

If you’re looking to borrow a very large sum of money then the bank will ask for some security. The loan is tied to something of value, such as your home, and the bank may repossess the item if you fail to make the repayments. Interest rates for secured loans are often lower and they are generally paid back over a longer period of time.

4. Debt consolidation

If you have a number of loans and credit cards then you may wish to take out a debt consolidation loan. This pays off all your old debts and moves the cash you owe into one place. It has the advantage of reducing the level of interest you may otherwise have to pay and means you only have to make one monthly repayment. A debt consolidation loan can also improve your credit record.

Where can I get a loan?

Facts about loans and borrowing money1. Banks and building societies
In order to borrow a significant amount of money you’ll have to go to a bank or building society. You don’t always need to have an account with the bank you choose so shop around for the best deal.

2. Loan companies
The number of payday loan companies around the country seems to be increasing at a rate of knots. These companies specialise in smaller loans that need to be paid back promptly if you don’t want to end up paying huge amounts of interest. Loan companies can easily be found online and there are high street branches you can go into if you prefer to do it in person.

3. Credit unions
Credit unions are usually community-based organisations that work on a not-for-profit basis. Interest rates are usually quite low but you have to become a member before you can apply for a loan.

4. Loan sharks
Loan sharks are not registered and as such provide loans illegally. Because they are not registered they don’t often play by the same rules as reputable companies and can become nasty and aggressive when it comes to repayments and are best avoided at all costs.

                                                       

 

 

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About Maria Brett

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About Maria Brett

Maria is a freelance writer with over 10 years' experience producing content for a variety of publications and websites. When not working or looking after her two gorgeous sons, she can usually be found playing flugelhorn in a brass band, helping out at her local hospital radio station, shouting at the television while watching Formula 1, at the cinema or plonked on the couch with a cold glass of wine.

Website: Maria Brett

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