Personal Loans
The most popular way to pay for home improvements or for a one off commitment such as a wedding or round the world trip is to take out a personal loan. Personal loans are available from banks, building societies or other specialist loan providers.
Many borrowers borrow an initial amount and then an additional amount during the life time of the loan. There are often conditions attached to borrowing and each loan can offer a differing set of 'rules'. You may be able to pay the loan back early but find that although your payments would cease once repaid in full you might have to pay a hefty redemption penalty.
The payments can be spread over anything from 12 to 60 months and many loan providers will encourage you to take out a loan protection policy at the point of signing up for the loan. This can add a great deal to the overall cost of the loan as interest may also be charged on the protection part of the loan and be spread across the entire lifetime of the loan. Secured Loans
A secured loan requires the borrower to put up their property as their main asset. If you are unable to pay off the loan you have agreed to sign over the deeds to your home to the lender. Interest rates are usually the main consideration and it is worth doing some homework before signing on the dotted line.
A fixed interest rate means that it will be fixed at a rate agreed at the start of the loan regardless of any rises to the banks base rate. This is popular with borrowers because they prefer to pay one set amount that does not alter from month to month. A variable rate can rise or fall in line with any rate changes during the life time of the loan. A ‘typical interest rate' is the rate of interest that you may be offered depending on your own personal circumstances. A ‘set interest rate' is a loan that is offered to successful applicants regardless of any risk they present.
When applying for a loan it is essential that you read all the small print as there may be conditions attached that could affect the way you repay the loan. Such as redemption penalties if you decide to pay the loan off early. This could be an additional sum that equals as much as two month's interest.
Unsecured Loans
The difference between an unsecured and a secured loan is that the borrower does not have a property to secure a loan against. A majority of lenders will offer a fairly substantial amount of capital. This can be up to £25,000 for people who are tenants and do not own a property of their own.
With all loans the lender will approach credit reference agencies to access the risk. The lender will require certain information from the borrower. This will inlcude proof of income and references. Unsecured loans are not usually available for speculative purposes or for buying property abroad. You may find that applying for an unsecured loan is a speedy process as a valuation of your home does not need to be arranged.
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