Are you in the need of extra cash to cover an unexpected expense or purchase something special? When you are strapped for cash, most people look to a loan solution, as can be an affordable and straightforward way to borrow money. Yes, you can always seek financing from friends, but when you need amounts larger amounts (£1,000 or more), seeking a loan may be your only choice. But just what is a loan and how does it work? This read will cover the commonly asked questions when it comes to securing a loan for the first time. Before we get into the article it may be worth you seeing fast bridging finance.
What is a Loan?
Basically put, a loan is the amount of money borrowed from another party, usually a financial institution, to be paid back with interest over an agreed-upon period of time.
There are various types of loans, but they fall under the following categories: Secured Loans and Unsecured Loans. With the former, you need to provide an asset as security so that if you are unable to pay (default), the lender can sell it off to cover the amount.
How do Loans Work?
In order to acquire a loan, you’re required to apply for the amount, either directly from the lender, or through a broker. This can be done physically at the bank, over the phone, or even online. Once your application has been approved, the money will be transferred directly to your account.
The terms of repayment differ depending on the product or lender, but in most cases, you’re required to pay back in monthly instalments until you clear the balance. If you miss a payment, you will be charged a fee, additional interest, and the total added on the amount of the next instalment.
What Can a Loan Be Used For?
The money acquired from a loan can be used for basically anything. However, some products are designed to help purchase specific items like cars or houses. A Mortgage, for instance, is a form of a loan that is designed to only purchase a property. If you fail to pay it back, then the lender has the right to repossess the house.
Pros of Taking a Loan
-Ideal for long-term borrowing
-The interest rates tend to be fixed
-You can borrow amounts up to £50,000
-If approved, you can get the money in as little as 48 hours.
The Cons of Taking a Loan
-Payments are usually inflexible
-You may have to put your assets as security
-You get fined for paying early
-Good credit score is required for the best interest rates.
How Long do You Have to Pay Off the Loan?
This is something that you have to decide on during the application process. The duration is usually between 1-7 years for an unsecured loan, but you might find lenders offering up to 10 years.
Keep in mind that the longer you take to repay the money, the more expensive it will be in the end due to the interest charges. However, paying over a longer period makes the monthly payments more manageable. As such, you’ll want to strike a balance between ensuring you can afford to make the repayments every month and paying as little interest as possible.
How Much Can You Get From a Loan?
Most loan products offer between £1,000 and £25,000. Smaller ones can last as little as 12 months, but for the secured type, they can last between 3 and 35 years. It all comes down to your needs.
