Helpful Hints and Advice

Secured or Unsecured?

Secured personal loans or homeowner loans need a property as security, so if you don't have a property, or no equity in your property, you are limited to an unsecured loan only. Secured personal loans can be cheaper because they are a lower risk to the lender, although these days there's less in it. If you default on your repayments, the lender can file for re-possession, so they will get their money back one way or the other. Unsecured personal loans don't have this risk but if you default you'll still lose your credit rating and find it difficult, and certainly expensive, to get credit in the future.

Interest Rate

Interest rates are quoted in advertising and on your credit agreement as an Annual Percentage Rate (APR). All lenders should work out the APR based on the same calculation so you can compare the cost of the loan. The APR will normally be lower the more you borrow, and the lender will have a range of APRs for different tiers of borrowing. Adverts for credit, including personal loans, have to quote a Typical APR, which should apply to at least 66% of people who apply as a result of the advert. The actual APR you are offered depends on your personal circumstances. The more 'creditworthy' you are, the lower the rate.

Monthly Repayments

Obviously you'll need to make sure you can meet the monthly repayments. Secured personal loans tend to be on a variable interest rate, so be certain you can cope with any interest rate changes on both your secured loan, and your mortgage. Unsecured personal loans are on a fixed rate basis so you know what your repayments will be throughout the loan term.

With Insurance or Without?

Payment Protection Insurance will be offered to you as the lender makes a tidy profit on each policy sold. The Financial Services Authority has found that claims on PPI policies sold with credit products tend to get rejected. In 2007 they found that only 1 in 10 claims on PPI sold with a secured loan was paid out. They refer to this as a 'claims ratio' of 10%. Compare this to a claims ratio of 74% for household insurance. PPI can be a valuable insurance to have, but don't buy the PPI the lender offers you. Go to an independent broker who can get you a better product which is suitable for your needs.

Up Front Fees

There may be up-front fees to pay. Work out whether these are worth paying because if they result in s a lower APR, they may represent good value. Remember to factor in any interest you would have got on the money if it was in your bank account instead.

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