If you’re in need of extra money to buy something or pay for an unexpected expense, a loan can be a straightforward way to borrow money that won’t cost an arm and a leg upfront. Loans are useful for borrowing larger amounts of over £1,000. Most people who need to take out a loan may not have borrowed money before, so here, we’ll talk you through everything you need to know about borrowing money.
What Is a Loan?
A loan is a lump sum of money that you borrow from financial organizations like banks, building societies, charities, credit unions, the government, the post office, etc. that you pay back with interest over a specified period of time. There are two different types of loans: secure and insecure. Secured loans mean you provide an asset as security for the loan that the lender can sell to get their money back. Unsecured loans are same day loans that don’t require you to provide anything as security, you just borrow the lump sum and pay it back over an agreed amount of time.
How Do Loans Work?
To get a loan, you need to apply directly to a lender or through a banker online, over the phone, by post, or in person. Once it’s approved, the money will be transferred into your bank account. You then pay the loan back in monthly installments until the total balance is paid off. If you miss a payment, you’ll be charged a fee and extra interest and the missed payment will be added onto the following month’s amount. You can also get joint loans together with another person. The lender will assess the personal and financial details of both loan applicants. The joint loan can be taken out with almost anyone as long as they’re over 18 and a UK resident.
How Much Can You Borrow?
You can borrow anything from £1,000 to £25,000 with most types of loans. Smaller loans tend to be over shorter periods of time like 3 years, whereas larger loans can last for a little longer. Secured loans can last anywhere between 3 and 5 years. To be able to get a loan, you need to be at least 18 years old, be a UK resident, and have proof of address. You need to be able to pay back the loan provide proof of your income and pass a lender’s credit check.
What is APR?
APR stands for annual percentage rate. It’s the total cost of borrowing over a 12-month period and is displayed as a percentage. The FCA outline that the APR must include all the standard costs of getting a loan including fees charged by the lender. Lenders are required to display a representative APR on all their loans to help you accurately compare rates. At least 51% of successful applicants will get interested at that rate or lower. The remaining will have to pay a higher rate. This means the exact rate you get depends on your circumstances and how risky the lender thinks you are as a borrower.