Guide to loans



There are many types of loans available for various purposes. In general they all have in common an interest rate on the amount borrowed.

Secured loan

A secured loan is secured on your property by the lender. The lender minimises the risk of losing any money and so can afford to offer a loan at a lower APR (Annual Percentage Rate) than an unsecured loan. A secured loan is often easy to obtain due to any adverse credit history being discounted. Many lenders will offer secured loans in excess of the equity available in the property. (Equity is the difference between the value of your home and the amount you borrowed to buy it.)

Unsecured loan

An unsecured loan costs more in repayments compared to a secured loan, but there is no longer any risk to your property. Unsecured loans can be more difficult to obtain for people with adverse credit history due to the lender taking a higher risk.

You are often offered at the same time as a loan an insurance against missing payments, the amount of cover varies and should be investigated before excepting. Loan insurance adds an extra amount to each monthly payment.

Trader Credit agreements

Credit sale

This is the most common type of credit agreement. Under credit sale, you buy the goods at the cash price. You usually have to pay interest but some suppliers offer interest-free credit. Repayment is made in instalments. You are the legal owner of the goods as soon as the contract is made and the goods cannot be returned if you change your mind. The supplier cannot repossess the goods if you fall behind in repayments but can take court action to recover the money owed if you are in arrears.

Hire purchase

Hire purchase is more commonly used to purchase vehicles, and involves the purchase being sold to a finance company who then hire the vehicle to you. The purchase remains the property of the finance company and cannot be sold without permission until the last payment is made.

Lease Purchase

This finance option is similar to hire purchase offering a flexible deposit, flexible repayment periods, and a flexible percentage of the purchase price can be deferred to the end of the agreement.

Cancelling a credit agreement

You can normally cancel these agreements within a few days, but if you signed on the dealer's or lender's premises, you may lose the 'cooling-off' period in which you can cancel without penalty



Other types of loan arrangements:-

Pawnbrokers

Pawnbrokers lend money against the value of property left with them. They must give a receipt known as a ticket. Pawnbrokers agree to keep the property for at least six months but you can get it back at any time during that period by paying off the loan plus interest. The period can be extended by paying the interest only and re-pledging the property.