UK Loans

The confusion over UK loans

At the end of June 2005 the total UK personal debt was £1,107billion. 2004 saw the largest increase in debt (£116billion) since the Bank of England was founded in 1694. However despite the high level of lending many customers still do not understand the different types of UK loans available or the important factors to consider when choosing the right UK loan for them.

Surveys of customer who have taken out UK loans have shown consistently that up to 50% of customers do not understand what the quoted APR means to them nor what other factors contribute to the total cost of borrowing.

When lenders advertise UK loans they quote the typical rate. This is the interest rate that 66% of successful applicants get offered by the lender. This standardised approach to UK loans was enforced by changes to the Consumer Credit Act in October 2004. However this is still confusing to a third of all borrowers that apply for a UK loan. Many of these borrowers will be offered a higher interest rate because of their poor credit history of paying off credit.

There is no doubt that the Consumer Credit Act will be changed in the future to help clarify UK loans further. However the current position remains confusing to many borrowers and this is why Myloanchoices provides its impartial information and search services – to help you understand the UK loans available and decide which product is right for you.

The two types of UK loans are unsecured and secured. Unsecured UK loans are the most popular and are used for general borrowing. This type of UK loan is called unsecured because the lender does not require any security for the debt. Because of this the amounts available to borrow are lower, up to £25,000.

Secured UK loans are only available for homeowners or consumers with a mortgage. The lender will secure the borrowing against your property. Because of this the amount you can borrow can be higher, up to £100k, and is often paid back over a longer period, for example 25 years. This type of UK loan is the most common solution if you require to consolidate multiple debts into a single UK loan.

What lenders are best for a UK loan?

Many lenders provide UK loans and new products are being launched all the time. Many of the lenders are not banks or building societies but instead new entrants to the market like Cahoot or other companies now in financial services like AA.

Most high street banks offer quite high rates for their products. Many UK loans are only available online hence you will need access to the Internet to apply for the product and also manage it throughout the term of the account. By applying online these lenders cut down on their operating costs so that they can offer you their UK loans cheaper. They are not spending as much money on advertising their UK loans and hence pass on some of the savings to you the customer.

How important is the interest rate with a UK loan?

Many people believe that the best product for them is the UK loan with the best APR however this is often not the case. Just because it has the lowest interest rate does not mean it will be the lowest total cost for you. This is how many lenders make their money because customers apply based only on the interest rate without doing their homework. Customers acting this way usually end up paying more in the long run.

The typical APR for an unsecured UK loan is usually from 6.0%. The typical rate will be higher for a homeowner or secured UK loan and there are more factors to consider such as the term of the borrowing which can increase the total cost to you.

When deciding on the best UK loan for you it is important to be aware of the additional charges because they can have a big impact on the overall costs. Some lenders charge an arrangement fee to open a product when you apply. This fee will need to be paid up-front and you will need to consider whether it is worth paying the fee to get the reduced rate and hence better monthly payments.

If you think that you may have spare money to pay off the outstanding balance before the end of the repayment term you should review whether the best UK loan for you has an early repayment fee, or settlement charge. These fees can be high and you need to know up-front before you apply.

Another important factor is the payment protection insurance that you may need to take out when you apply for a UK loan. This insurance will provide peace of mind during the repayment period by covering the monthly payments should you find yourself involuntarily unemployed or off work due to accident or ill health. The majority of policies also provide to pay off your outstanding balance in full in the event of your death.

The cost of payment protection insurance varies considerably from lender to lender and should be a key part of your research. You should ask if the lender requires you to take their insurance and factor this into the overall costs. If not, and you want the additional cover, you should shop around for the cheapest insurance product for you. Your lender may require details of your insurance policy when you open your product but this is commonplace in the industry.

The headline interest rate is therefore an important factor and can help to identify a range of potential UK loans for you. However the key to you is the combination of up-front application fees, the monthly payment and the overall cost of paying back the money.

See Myloanchoices best buy secured loans

See Myloanchoices best buy unsecured loans

How to find the right UK loan for you

The first step when you are looking for a UK loan is to ensure you are comparing like with like. All lenders quote a typical rate but you need to understand your credit history because you may be one of the unfortunate applicants that is unsuccessful and gets offered a rate higher than this due to your poor history of paying off credit.

See Myloanchoices guide to credit history

Before you apply make sure you think about what you want from a UK loan. Make a list of your requirements. How much money do you need to borrow? What monthly payments can you afford? How many years do you want to pay the money back over? Would you like to manage your UK loan online? Is there a possibility of you having spare money at a later stage to pay off part or all of the outstanding balance? Are you happy to borrow from any financial services company or will you only consider a well know brand? All these things are important and can influence the best UK loan for you.

Myloanchoices offers impartial information and search services on UK loans to help you decide what product is right for you. You can use our repayment calculators to work out how much your monthly repayments will be for different rates. You should then review our best buy tables and review the detailed products features of each recommended UK loan. When you have completed your research you can apply online for your chosen UK loan by clicking through to the lender’s website to start the quick and easy application process.

See Myloanchoices best buy secured loans

See Myloanchoices best buy unsecured loans