Consumer Advice

Getting a Loan

A loan can be the answer to all your financial woes, just make sure you get the right one.

As with all forms of credit you must be over 18 before you apply for a loan. Most people find at some time in their lives that they may want access to extra money that they can pay back later.

Taking a loan out can be the sensible answer to help with a big purchase by repaying set amounts each month. You need to consider carefully which form of loan/credit is the best for you.

Most loans require you to:

Be resident or ordinarily resident in the UK
Have a good credit record
Receive a regular income
Some may ask for a deposit and also charge a set-up or administrative fee

Types of loans:

Overdrafts

This is probably the first port of call if you find that you need short term credit to make small or frequent purchases from 1 month to the next.

Credit cards

Credit cards are very useful for emergencies and also making those purchases that you do not have enough money for at the time but will be able to repay the next month or by instalments.

The credit card is an option to cover large or small purchases, however be careful with credit cards. If you are not careful you may find that you will incur high interest rate charges on the money you borrow.

Unsecured personal loans

Personal loans are especially suitable if you need to pay for a large item such as a car or a holiday. Most lenders will offer you up to £15,000.

The interest rate may vary depending on how much you borrow and over what period of time you agree to pay back the loan. Generally you can pay it back over 12-96 months.

It is important to remember that if you pay back your loan over a longer period, the monthly repayments are usually smaller but you pay more interest because you have the loan for longer.

Some banks offer you the chance to combine all your financial commitments into one loan with a fixed interest rate so that you can pay your debts off gradually by making one payment each month.

Secured loans

A secured loan gives the lender the security of knowing that if you fall behind on repayments they can claim the money back by repossessing an asset that you have secured the loan against.

The most common way of securing a loan is to take out a mortgage on your property. If you fall behind on repayments the lender can apply to the court for a repossession order and then claim the house or whatever you have used as security to repay your debt.

Secured loans tend to be cheaper because they are less of a risk for the lender but you should always consider the implications if you fall behind on your repayments.

Payment protection

A lot of banks and building societies will offer you payment protection with your loan. For a small monthly fee this ensures that your repayments will be paid if you find that you are made unemployed, are sick or have an accident. In most cases if you die your loan will be paid in full for you.

Loan sharks

Be very careful when you choose a lender. Make sure you use a reputable company, as some of the more unscrupulous lenders can often charge very high rates of interest that make it difficult to pay the money back. Check what you are committing yourself to before you sign any contracts.

Credit scoring

All lenders will credit score you before they give you the money. Most lenders do not reveal their criteria and the eligibility questions will vary from lender to lender but generally you can expect to be asked:

If are you a home owner
How long you have lived at the same address
If you have any other form of credit

They will also check if you are on the electoral roll.

Whether you get credit will depend upon the lender's requirements and whether your answers are acceptable. If, for example, you already have credit, you make your monthly payments on time and fit all the other criteria, the lender may agree to give you credit.

If you have a bad credit history and have gone into arrears on any other payments then some lenders may decide not to give you the money.

However, you are equally as likely not to get money if you have never had credit before because the lender cannot check whether you have managed credit well in the past.

Lenders get their information from credit reference agencies. These agencies hold details of people's credit history. The lender does not have to give you a reason for turning you down for a loan but you do have a legal right to be given the name and address of the credit reference agency that they used.

If you want to check with the credit agency about the information they hold about you, you should write to the lender within 28 days of your last contact with them. They have to reply within 7 days with the address of the credit agency.

You can then write to the agency to find out what information is on your file and let them know if anything is incorrect.

What to do if you are in serious debt

Don't panic if you find that you cannot pay back what you owe.

Do not ignore mounting debts or requests for payments
Contact all the people/companies that you owe money to and let them know about your situation
Try to organise for a new payment schedule
Contact your local Citizen's Advice bureau who can give free advice and support. They also have a National Debt Line number that can offer guidance and advice on 0121 359 8501