Loans Defined
What is a loan?
A loan is where you as an individual might decide to borrow money from a lender, and you have to repay that over a period of time.
Why might I need a loan?
You might need a loan because you want to buy an asset, or to buy something for yourself or your home or something like that, or you might need to consolidate some debt you built up from somewhere else.
Where can I get a loan?
You can get a loan from a whole range of places. An awful lot of people go to their bank or building society. Over 50% of people borrow through that type of route, but you can also go to a series of companies that you might find on the internet who do loans as well.
Why should I get a loan from a Bank or Building Society?
You might get a loan from bank or a building society, which will give you certainty in terms of the reputation of that business. You would have certainty about the amount you have to repay. They are a reputable organization and they have to comply and fall into a comply that's called a banking accord. And that sets up some protections for consumers around how the bank or the building society conducts its business.
Why should I get a loan online?
You might want to get a loan online because you might be able to get a better interest rate by going that way. You might not have the same protections in terms of something like the banking coach of that company, but if you shop around and look for protection from certain companies, you might get a better deal in terms of interest rate.
What different sorts of loans are there?
The first type of loan that does exist is actually not called a loan. You would normally see that linked to a bank account, which is an overdraft. You can also get a credit card, which although it's not seen as a loan has a limit attached to it more often than not, and you are borrowing money in that situation. The third things are called unsecured loans or unsecured personal loans which are the same thing. Then there are secured loans, where you have to secure an asset - normally your house - in order to be able to obtain that type of money. And the last type of loan is actually a mortgage on a property and that people don't often see as a loan, but it is a loan.
What are the benefits of getting a loan?
If you get a loan, it allows you to budget more effectively. One of the problems about borrowing on a credit card or an overdraft is that some people find it difficult to pay that off. The loan allows you to fix the amount, and if it's for an asset like a car or something for the house, you can match the length of the loan to the asset. Therefore, you can have certainty that you have repaid the debt over any set period of time and that helps in terms of budgeting as opposed to an overdraft open ended, and you might not quite have repaid it.
What are the drawbacks of getting a loan?
Many people find that borrowing money can actually add to their problems. You've got to be very clear that, in terms of borrowing money, you do have to pay it back. The main drawback is if you find difficulty in paying it back, you're going to get yourself into financial difficulties. You've got to be clear that if you're borrowing the money, you really need to borrow it and ensure that what you are using the money for is sensible. Secondly, you need to make sure that you can afford to make the repayments, so that you reach the point where you are comfortable with what you're doing as an individual.
What are the risks of getting a loan?
The main risk in getting a loan is you have trouble repaying it. If that happens, then you're liable to have problems further down the line, because if you fail to meet loan repayments, people will record that on your credit history, and that impacts on your ability to have further borrowing. If you ultimately reach the stage where you can't repay the loan at all, then there are risks there as will, because you may be taken to court and have a judgement registered against you, which is normally a county court judgment. That will also impact on your ability to borrow money further down the line.
