Personal Loan FAQ - eg. What Are Unsecured Loans?

Personal Loan - Frequently asked questions

Here are some frequently asked questions and their answers which may assist:

Q. What does APR mean?

A:APR stands for Annual Percentage Rate. This is the interest rate that will be applied to your personal loan, it is calculated as a percentage of what you borrow and charged as an annual interest charge. So an APR of 8% means you pay £8.00 per year, for every £100 borrowed. This is an important charge you should be aware of when selecting a personal loan as the lower the APR, the less it will cost you. The actual APR you may be offered is dependent on the amount you borrow and your credit history, and may change during the term of the loan depending on whether the interest rate is fixed or variable.

Q. What is a secured personal loan?

A: A secured loan means that your home is used as security against the loan. Secured loans tend to be easier to obtain, because you are guaranteeing repayments against the value of your property, and the amount you are allowed to borrow is usually much higher. This can be useful if you have a poor credit history or county court judgements against you and applications for other types of loans have already been turned down. Before taking out a secured loan it is worth talking to an independent financial advisor to get an overview of other borrowing options. You might find that it makes better financial sense to re-mortgage (link to re-mortgage booklet) your property, or take out a home equity loan. (link to mortgage booklet?)

Q. What is an unsecured personal loan?

A: An unsecured personal loan means you do not have to be a homeowner to apply for one, and that if you are a homeowner, you do not have to secure the loan against your property. The interest rate of an unsecured personal loan, although normally higher than a secured loan, will remain fixed for the duration of the loan, and is therefore easier to budget for and manage, regardless of external economic fluctuations.

Q. What if I get declined for a personal loan?

A: Most lenders have an appeal process, the first step is to ask the company why your application has been declined, there may be several reasons. If it was as a result of a bad credit reference you can ask the company which credit reference agency they used and, if you haven't already done so, you can contact the credit reference agency and check out the credit reference yourself for a small fee. Sometimes credit information about you is incorrect or has been affected by someone else fraudulently using your name and information so it is worth checking this out. If you have been declined because you don't meet the company's lending requirements you may have to approach another lender who may have different criteria, or investigate alternative types of lending.

Q. As a tenant can I get an unsecured loan?

A: Yes, the only type of loan that you can't get as a tenant is a secured loan because you need a property to secure the loan.

Q. What if I fall behind on my repayments?

A:If you find that you are struggling to keep up your repayments, contact the lender and explain your problem. Lenders would prefer to work out a new repayment plan that you can afford, rather than start legal proceedings against you or take it as far as repossessing your home.

Q. What is a debt consolidation loan?

A:If you have more than one source of debt (such as credit card debts, and maybe one or two personal loans,) it is sometimes possible to put them all together into one new loan. You can get the repayments for these "restructured" into smaller payments per month over a longer period. This can offer interest savings and make the debt easier to manage. Usually a secured loan is used to consolidate and pay off unsecured debts.

Q. What are sub-prime lenders?

A: These are non-mainstream lending companies (i.e. not major banks and finance companies) who usually advertise on TV and offer debt consolidation loans, or simply loans that are easy to obtain, whatever your circumstances or credit score. Loans form these lenders usually have very high rates of interest.

Q. What are 'flexible repayment terms'?

A: Flexible repayment terms can include the option of taking 'payment holidays', where you can stop repayments for an agreed period of time. Or reduced redemption charges - so you won't be charged early repayment fees if you want to make lump sum payments into your loan or pay the loan back early.