Do you need a secured or an unsecured loan?

Deciding to get a loan is an important decision, because it may tie you into a financial commitment for a number of years.

If you are a homeowner, the first thing to decide may be whether to go for a secured or an unsecured loan. The difference between them is that secured borrowing means that the lender can step in and sell you house to recover the debt if you miss enough repayments.

Advantages of secured borrowing

The advantages of secured borrowing may include:

• lenders may offer a more attractive rate of interest (compared with unsecured lending) because they have recourse to your house if you default;
• you may be able to borrow money over a longer term than with unsecured lending; and
• you may even be able to add extra borrowing to your existing mortgage.

Advantages of unsecured borrowing

On the other hand, you may wish to consider unsecured borrowing because:

• you may be able to get a shorter term arrangement, if that’s what you want;
• you may have more flexibility about making an early repayment; and
• an unsecured advance may not put your house at risk.

Other factors to take into account

Aside from the decision about whether your borrowing should be on a secured or an unsecured basis, you may need to bear the other things in mind that may typically apply to a lender. For example, what will the interest rate be? There are a number of different ways to calculate interest rates, including rates that remain fixed for the duration of the borrowing and rates that may vary in accordance with how the Bank of England’s base rate behaves.

Most of the online loan applications will provide a loans calculator so you can get a guide to what the costs may be.

You may also wish to take into account the flexibility that different lenders may offer. For example, are you able to “borrow back” any of the amount that you have repaid? Might you have access to more funds to borrow should you need it?

Finally, you may wish to pay attention to your credit rating before you apply for a loan. It may be worth making sure that your repayments are all up to date so that you can present yourself in the best possible light. You can check your credit history by getting a copy from Equifax (www.equifax.co.uk) or Experian (www.experian.co.uk).

Personal loans – the basics

Personal loans are widely used to help fund various activities.

The term personal loan in practice covers a wide range of loan products and may be used differently from one bank to another.  In general it can be seen as being a loan advanced to you as an individual rather than to a company or a legal entity.

The basic characteristics of a personal loan include:

• the amount being borrowed;
• the interest rate charged;
• the repayment period (in months or more commonly, years);
• the purpose the loan is required for (some purposes may have specific loan products available such as business development loans or property improvement loans).

The interest rate

The interest rate is commonly quoted as an APR (annual percentage rate) figure.

In general, the higher the APR quoted on a loan then the more it will cost you overall – all other things being equal.

Note that the APR quoted in many advertisements doesn’t necessarily mean that you’ll be offered that rate and is the ‘typical; rate they offer a customer.  The actual APR used in your specific circumstances will depend upon several factors including, for example, your personal credit history.

If you have a poor credit history then you may not be eligible for the lowest APR.

To qualify

Many financial services organisations offer personal loans. To obtain a loan you’ll typically need:

• to be in employment and earning a regular wage or salary;
• to have a verifiable UK address;
• to be looking for a loan amount that is realistic when considered against your earnings and other regular financial outgoings plus the purpose it will be put to;
• to have reasonable credit history (individual lenders’ policies may vary here).

Security

Individual lenders may have different policies regarding security. 

Depending upon the amount borrowed, your history and the purpose, some may ask you to secure the loan against an asset – often your home.

Remember at all times that if you are unable to pay off a loan secured against your home then it may be at risk of being seized so that the lender can recover the loan.

Personal loans, when used sensibly and responsibly, may be able to help your life run that bit more smoothly.

Using a personal loan

The personal loan can be a very useful tool when used appropriately.

Let’s consider for a moment a typical family that may have children, a house, a car and a mortgage.

However pleasant that all sounds, sometimes they may need a little extra cash for any one of a number of reasons:

• a window frame in the house is rotten and needs to be replaced;
• some new garden furniture is needed;
• the children have the opportunity to take a trip overseas;
• a shower room needs to be fitted.

Whatever the reason, a personal loan may be the answer.

The loans can be for potentially any amount and the maximum advance will depend upon your personal financial circumstances and to some extent, the purpose the loan is required for (and the financial organisation’s own limits as well).

Repayment periods and interest rates typically vary widely and shopping around is often highly advisable.

This form of loan may or may not need to be secured against an asset of yours although smaller loans typically don’t require such security. It depends to some extent upon the policy of the loan provider, the amount you’re borrowing and your credit history records.

Typically, people with poor credit histories may have to offer security or pay higher interest charges (or both).

It’s worth keeping in mind that if you default on any loan secured against an asset (e.g. your house) then that asset may be liable to seizure.

If you’re using this type of loan to purchase something, some lenders may ask to see evidence of the purchase price in advance – such as a supplier’s invoice etc. Some may also expect to see that you are paying for a percentage of the item or expense out of your own financial reserves.

If you are considering:

• purchasing a major asset such as a car;
• funding a major home improvement such as a conservatory;
• starting up a business;

then it may be worth checking to see if there are specific loan types available for such purposes.

They may prove to be a little more suitable than a standard personal loan in such circumstances.

Secured and unsecured loans

If you are thinking about taking out a loan, you may be wondering about the differences between secured and unsecured loans.

Which would apply to your circumstances may be determined in part by a number of factors including:

• how much you want to borrow;
• whether or not you are a homeowner.

Unsecured loans

Unsecured loans are typically based on your credit rating plus your income and are commonly used for things like:

• debt consolidation;
• DIY projects;
• or perhaps a new car.

The amount of interest that you pay on an unsecured loan is based on how risky a proposition your lender perceives you to be based on your credit rating.

If you default on an unsecured loan, the lender may take recovery action but this does not necessarily mean that you would lose your home. You do not have to be a homeowner to take out an unsecured loan.

Secured loans

A secured loan is one where the loan is guaranteed by one of your assets. The most common asset used as security is your home and secured loans may sometimes be known as homeowner loans. Certain types of car loan may use the car as the securing asset.

For many lenders, if you do not own your property it is unlikely that you would qualify for a typical secured loan.

Secured loans tend to be for larger amounts of money where the lenders may feel that their risks are high and so want to guarantee that, in the event of something going wrong and the repayments stopping, they have a valuable asset that they can use to offset their losses.

The most common type of secured loan is probably a mortgage and your lender will hold the deeds or your property until your mortgage has been paid off.

The amount you could borrow with a secured loan based on your home may be determined in part by the amount of equity you have in your home.

The equity is the amount of money that you would have left over if you sold your house and paid off your mortgage.

Any further loan secured on your property would have to be paid off using the remaining equity.

If the value of your home were the same as the outstanding mortgage then, in theory, the sale of your property would only cover the balance of the mortgage.  There would be no money available to repay any other loan.

So in addition to being a homeowner to qualify for a secured loan, you would typically also have some equity in your property.

Using a loan calculator to help work out your budget

Many of the major banks offer extensive online banking facilities, including the ability to arrange loans. They may also offer an online loan calculator to help you understand how a potential loan could affect your monthly budget.

The first thing you need to decide though, is how much you want to borrow and for how long.

The cost of a loan

An important point to remember is that there is a direct relationship between how long you have the loan for and how much interest you’ll have to pay

With a loan taken out for 5 years, for example, you may typically pay less in interest overall than if you opt for a loan of 10 or 8 years.  However, the monthly instalments for a 5-year loan will be higher than if you borrow the same amount of money over a longer time frame.

So if you can choose the length of time you want to have the loan for, then you have to weigh up whether you prefer:

• to pay the loan back as quickly as possible to keep the overall cost down;
• or to get a lower monthly repayment at the expense of paying more in interest over a longer period of time to the lender.

A typical loan calculator like the ones supplied by the online loan providers should help provide you with the information you’ll need to make your decision including:

• the monthly repayment instalment;
• the typical Annual Percentage rate (APR);
• the total amount payable.

You can obviously input different loan amounts and time periods and compare repayment schedules.

Can you afford your loan?

Once you have the monthly repayment figures, you may be able to go one step further with the loan calculation and see how the loan would work out for your monthly budget.

It’s not just a question of keying in your income. You also need to be fairly accurate with your expenditure to get a realistic idea of whether or not you can afford the loan repayments.

When planning your budget, remember to include all aspects of your income - for example:

• wage or salary;
• income from properties and investments;
• other benefits.

Expenditure figures will include things like:

• rent or mortgage;
• childcare costs;
• food  travel and utilities costs;
• maintenance payments;
• other loans.

Some loan calculators can estimate some of these elements based on the structure of your family (number of dependent children etc.).

Armed with the information supplied, you can then decide whether or not you want to proceed with the loan.

A final point to bear in mind is that the figures provided by a loan calculator are useful as a guide for information only. Final figures will only be given once you have completed a loan application and following a credit check.

Payday Loans

This is always one of those things in life - should I or should I not? Chances are if you are reading this article, you are probably in some kind of a financial crunch. So first, relax, it will all work out eventually. Next, instead of solving a BIG problem one time, break it down into smaller pieces - like bite size Reeses pieces and the problem will seem easier to solve.

So what are payday loans? In layman’s terms, its money you can borrow against your paycheck. There are several providers - from national companies to state wide companies to local neighborhood pawn shops. If you are looking for payday loans, go with someone you can trust. Typically, the interest rates vary a lot and its always a good idea to check with multiple providers on the interest rate they will charge you. So shop around.

You should also watch out for early payment penalty clause. In case you are able to pay up the money sooner than the term, will there be any penalty assessed? If you think this may be a recurring issue for you, then ask for better terms with the service provider. Depending what kind of an emergency it is you going through, check with your insurance provider.

Before you get any loan, be informed about your credit score. This is what lenders use to assess whether to give you a loan or not and under what terms. Check your credit score beforehand to negotiate favorable terms.

You should also think about asking your employer to see if they can advance you some money for whatever emergency it is you are having. This is a tricky situation as you may now have to share more information than necessary with your employer and also they can deduct the borrowed amount directly from your next paycheck. Again it depends on your circumstances and your relationship with your employer. And in an emergency, you got to explore all options. Just remember that try to use payday loans as an emergency and dont make it a habit.

Wish you luck and am sure everything will work out.

credit score

What You Must Know About the Debt Ceiling Crisis and Your Student Loans

With the looming debt ceiling crisis threatening to affect multiple public benefit programs, and no end yet in site for the talks of default on Tuesday, August 3, it behooves any student or person interested in student welfare to understand the possibility that either default or debt ceiling negotiations may have on their student loans.

If The Worst Should Occur, Default

With political strife reaching its peak, many speculators are looking to the possibility that the United States may default on its debt, and the implications on students, whether they have loans or not, is horrendous.

College campuses will be forced to either temporarily close or cut back on staff and spending, as the federal aid disbursement that assists in the running of these places of higher education will halt.

Student loan securities that are held by investors across the globe will plummet in value, and the infrastructure that holds our federally backed student loan interest rates will nosedive, potentially causing an increase in interest rates and higher monthly payment amounts immediately.

Lastly, the effects of a debt ceiling freeze on campuses would not end with staff shortages and closures, but would also prevent students from receiving financial aid disbursement at the start of the coming semester, which would leave many students unable to attend classes and continue their education.

Negotiations, Proposals, And Student Loans

Many republicans are calling for significant cuts to federally funded public benefits programs, and Rep. Eric Cantor has brought up the possibility of removing subsidies from Stafford loans that are offered to students struggling to meet tuition costs.

This would mean that the interest rates, which are currently being covered by government subsidies, would accrue upon the principal repayment amount from the origination of the loan, as opposed to accruing following graduation or a cessation of enrollment.

This proposal would be expected to save the federal government some $40 billion over the next 10 years, and student loan holders would have their interest rates begin to accrue on their loans immediately.

No Subsidies Equates Into Poorer Students

This translates into a typical student, who borrows the maximum amount of $23,000 via the Stafford loan program, and takes approximately six years to finish his or her education, would owe $5,000 more upon graduation, with an additional $9,000 piled on to the principle after a 20-year total repayment period.

The Stafford loan program is offered to financially needy students as a way to cover the cost of college without resorting to costly, higher interest private loans. Losing this subsidy would mean that those already at a low rung in the financial ladder would find themselves a step further down.

What If Loans Aren’t Sacrificed?

Unfortunately this additional cost to education is not the worst that could happen to our financial aid program, as even preventing the Stafford loan change to interest rate subsidies could mean a reduction in other grants and loans available to students.

Losing subsidies to Stafford loans would not endanger the total amount of of funding available to students to cover the cost of a higher education, however, and this option would perhaps be the best amongst a variety of worst-case scenarios.

How Many Students Would Be Affected?

Rich Williams, higher education advocate, claims that half of all Stafford loans are subsidized, and the Stafford loan program is the largest loan program currently undertaken by the United States government. This would mean that a significant portion of the student populace would be affected by putting subsidies on the debt ceiling chopping block.

Will The President Allow This?

President Obama as expressed frustration with republican ideas concerning the debt ceiling, especially considering attempts at reducing public benefits programs and maintaining tax cuts for wealthy individuals, corporations, and oil companies.

“I’m not going to do that,” Obama was quoted as saying when asked about cutting Stafford loan subsidies and social security. “I’m not going to take money from old people and screw students.” (The Daily Beast, July 11, 2011).

How to Use a Car Loan Calculator

If you are planning to buy a new or used car through a car loan, you must weigh all the options including whether you want to go long term or short term.

Many people dash headlong into financing without actually looking at their budget and options. A car loan calculator is designed to help with this task. It will show you how much you can afford to allocate considering your monthly income. Spending more than you can afford is never a good idea.

Plumping for a long term option will put lesser pressure on your monthly instalments but if you compute all the payments that you will have to pay until it’s fully paid, you might be paying more than the actual value of your car.

But if you choose paying for the car loan in short term, it will put more pressure on your part to meeting the monthly instalments, however, the total amount you pay by the end of the finance agreement usually decreases as you choose a shorter term.

The only consolation is that the final cost won’t be as high as the long term financing. It is just a matter of having so much patience in looking for a car loan because there are car loans that offer you 0% interest provided that you have a high credit rating and pay on time.

This, although a rarity these days, is the best choice. Once you calculate your payments using a car loan calculator, you will end up paying the actual value of the car in the end.

To make it easier for you in calculating, you can use a car loan calculator that will help you compute the right payment for you at a given time that will end up saving you money.

Why can’t you get that low rate loan?

Sometimes it seems difficult to reconcile the loan advertisement figures with the figures you’re actually being quoted. Whatever happened to that low rate loan?

Loan rates

It’s not unusual to see a headline interest rate for a loan and alongside it a little asterisk.

Somewhere down on the small print it will have the notes that relate to the asterisk and you may find that they say, to all intents and purposes, that the quoted rate is only available in certain situations and is based on the ‘typical’ customer.

If your particular circumstances don’t meet that type of situation, then you may end up paying more than the advertised rate.

Conditions

Those conditions may be varied and lower rate loans may only apply to:

• secured loans where your loan is being guaranteed by one of your assets – say for example your property (in practice, it may be difficult to obtain an unsecured loan unless you have an excellent credit history and they may prove to be more expensive);
• loans above a certain value;
• loans which are linked to having an existing account or opening one;
• etc.

This isn’t a comprehensive list and there may be a number of reasons why that low rate loan advertisement may not apply in your case.

Secured versus unsecured loans

As touched on above, lenders set their prices based on several factors, one of which is their perceived risk.

A secured loan (or one underwritten by a guarantor) is lower risk for the lenders and you may, therefore, benefit from a reduced price.

Undertaking to secure your loan may be interpreted as a sign of your confidence that you’re going to pay in back in a reliable and orderly fashion – and that’s what many lenders like to see.

Of course, before securing any loan on your home itself, you should be absolutely certain that you can afford it and will be able to repay it back on the basis you commit to as part of the loan agreement.

If you do not, you may risk losing your home or the asset you used to secure the loan.

Do the maths

So, don’t be too swayed or frustrated by those low rate loan offers.  Look around, think about your options and above all, do your sums.

Financing a Car the Smart Way

Most people cannot purchase cars for cash , so they seek outside financing. You can get a better deal by becoming an informed consumer and refusing to give in to high-pressure sales tactics. When you know what you are doing and refuse to let salespeople manipulate you, it gives you an advantage. Get your credit rating, so you know what kind of interest to expect.

Pre-arrange financing before you purchase a vehicle keeping the length of the loan as short as possible. Bank and credit unions usually offer simple interest loans spreading the interest out over the length of the loan. Loans through a dealership may require you to pay more interest at the beginning of the note eliminating any advantage to paying it off early.

However, do not automatically discount financing through the dealership because they sometimes have special financing that offers the best available deal. A little known trick of the trade when dealers offer financing is that they sometimes take the lowest lender rate and increase it, which is their profit on the financing. Unfortunately, this is legal and does not require disclosure. Crunch the numbers before shopping, so you will know what you can spend.

Do not let the dealership convince you that you can pay for anything on the lot. Remember, you already know what you can afford. When you find a car you are interested in, go online and look up the blue book value or call a friend to look it up. To make an informed decision you must know the value of the car. Even if you cannot get cars for cash try to make at least a 20% down payment.

Create a similar checklist to ensure you get the best financing available:

1. Get your credit rating
2. Comparison shop
3. Pre-arrange financing
4. Learn the value if what you are buying
5. Make a down payment
6. Crunch the numbers
7. Know and accept your financial limitations
8. Do not be manipulated
9. Know the exact terms of the final agreement
10. Pay more than the monthly payment

Bio: Matthew loves to discuss issues pertaining to cars. On his spare time he works for a place that helps individuals sell a car.

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