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Online Loan - What is APR, Fixed Rate Loan, Variable
Rate Loan, Unsecured and secured Loans |
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UK Loans
Jargon Buster,
Understanding Credit and Loan Terminology. |
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APR – Annual Percentage Rate with UK
loans or any UK Credit this number must be
prominently displayed alongside the product it
relates to. Apr is meant to allow you the
customer to compare products on a like for like
basis. It is made up from the following items:
The rate of interest you must pay.
How long the loan is for (the term).
How much you pay for each payment.
How often you have to make these payments (the
frequency).
Any compulsory fees associated with the loan
(setup fee etc).
Any payment protection plan the lender may make
compulsory.
Wow that’s a lot of extra stuff! UK loans are
pretty well regulated, that’s good, it’s there
for our protection. So if you see a loan that
indicates an interest rate that’s amazingly low
take these steps:
Stop and think - why so low?
Does it state APR or flat rate?
If APR then it’s worth looking at.
If it’s a flat rate then whoa! Is there
something wrong, why isn’t the APR listed?
Wow that’s a lot on APR – The reason being is it
is the main way to compare like for like, eggs
for eggs. No that’s not an endorsement of a
financial company it’s a saying.
Fixed Rate and Variable Rate
If the loan/mortgage you are going has fixed
rate then the repayments will be the same for
the period (or term) of the loan. Fixed
mortgages are offered but these are normally
only fixed for a few years and then you have
re-negotiate a new rate or move to a variable
rate mortgage. Variable rate simply means that
the rate of interest you’re charged can vary,
the lender should inform you of the new rate
giving you time to plan.
Secured Loans vs. Unsecured loans
If you asked me to lend you some money, and not
forgetting that I don’t know you from Adam, I
think it would be fair of me to ask for some
sort of security should you be unable to pay the
loan. That would be a secured loan. Now what if
you, like me, don’t have anything you could use
as security, a house for example, and you come
to me for a loan I might say “I like the cut of
jib, maybe we can do a little business” which is
effectively what UK loan companies are doing
when the do a credit check. Now here’s the rub,
because I can’t make a claim on your security,
should you default I will have to charge you a
higher rate of interest. This seems fair really
because, we all take a loan out with every
intention of paying it, but sometimes the brown
and smelly hits the rotating wind machine and
some default – that has to be paid for. That’s a
risk, it’s all about risk, so what companies do
is spread the risk across all the people that
lend money from them, hence a higher APR.
IVA Individual Voluntary Arrangement
Daytime TV is awash with adverts promoting the
so called easy way out of debt problems normally
by way of an IVA, please do not confuse these
with debt consolidation loans they are two
different things. An IVA is where you come to an
agreement with all the companies you owe money
too, this agreement may be that you only pay
back a percentage of what you owe or get the
interest frozen or many other things. This
complexity is why so many companies have sprung
up to do this negotiating for you, don’t forget
you will pay for this service. Once it has been
decided what you want to do all your creditors
will vote on whether they want to go with the
plan or not. If the vote goes in your favour
then you and they are bound by it, if you fail
to meet your side of the new bargain then the
consequences can be dire and may result in
bankruptcy. Your credit rating will be affected,
particularly whilst the IVA is in effect and up
to 6 years after. |
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