Need A Loan? Here’s 4 Top Tips!

But first…What is a loan?

In banking, a loan refers to an amount of money that is loaned to a borrower at interest by a bank, sometimes using an asset as a form of security should the borrower be unable to repay the loan on time and in full.

In finance, a loan refers to a method of financing whereby a company receives a loan and gives its promise to repay it within a certain period of time.

What types of loan are there in today’s market? There are: Secured loans Unsecured loans Student loans Property loans/Mortgages Guarantor loans Payday loans Adverse loans Debt consolidation loans

Whether it is a cup of sugar from your neighbour, or a DVD from a mate, when you are taking something from someone else on the premise that this will be returned to them, it is called borrowing.

Taking out loans is just another form of borrowing and it particularly refers to borrowing money.

Once you have borrowed money, you are in debt to the lender until you have paid back the money borrowed in full and with any additional charges included, e.g. interest fees, late fees, early repayment fees, etc.

But first…

# 1 Debt can be both Good and Bad!

Good debt refers to… Having a clearly defined

purpose with a repayment plan that is realistic and affordable for the borrower.

A transparent understanding

between the borrower and the lender on the terms and conditions of the loan.

A positive credit history that reflects regular repayments being made on time and in full.

Bad debt refers to… When we say something, such as

being “in the red” or being “neck deep in debt”, we are usually referring to bad debt. This usually refers to the inability to pay off a debt in full, including any interest charges.

If you’re late or miss repayment dates, then this can affect your future chances of securing another loan.

If it is a mortgage, then being unable to pay this off can lead to homes being repossessed.

Take interest in interest rates!

As with everything, borrowing money also comes with a cost and this cost is known as the interest rate.

In turn, the interest rate is calculated by percentage rates and can therefore also be known as the Annual Percentage Rate (APR).

If a loan has a low APR, it means that it may cost you less to take out a loan, or a mortgage, or to use a credit card.

We say ‘may’ here because an APR is an annualised figure, i.e. it tells you how much it can cost you to borrow, assuming that you are borrowing over a year.

So, the higher the APR on your loan, the more interest fees you are going to have pay for it.

# 2

Consider Carefully: What is this Loan For? We think you should ask yourself the following questions before you actually decide to take out a loan:

Is the reason for borrowing the money justifiable? Do you need to borrow, or do you want to borrow the money? If so, why do you need or want to borrow the money? What would it cost you to borrow? Can you afford the costs? What effect will this have on your current monthly expenses? Will it affect your ability to pay off any other outstanding balances that you may

have? (E.g. credit card payments, credit agreements, mortgage repayments, etc.?) How quickly can you pay the full amount off? Would borrowing the money affect your credit score positively, or negatively? Would this be good or bad for your financial future? What if your current financial situation were to change?

# 3

Understand the relationship between your credit score and loans

Your credit score is a 3-digit number, ranging between 0 and 999, that represents how trustworthy you are when it comes to making credit repayments.

Generally speaking, the higher your credit score is the better chances you have in securing the loan.

This is because a high credit score may indicate to the lender that you are less of a financial risk, as you are likely to make the repayments on time and in full.

If you miss a repayment due date or are late, this could affect your credit score negatively.

# 4

Check your credit score and credit report today at

!

.co.uk !