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Loan Types

Is a Secure Loan Worth the Risk?

A secure loan is one that uses an item as security. Commonly you would use your home or car as collateral. What this means is that if you were not able to make repayments on the loan then your home or car could be repossessed in order to pay for the debt. It is a very common thing for people to do when paying a mortgage or a car loan but it is worth assessing the risk before you do it.

If you are buying a home, then it is most common to use a mortgage and have the house as collateral. This means that if you get to the point where you are struggling to make the repayments then the bank will take the house, sell it and use the profit from the sale to pay back what is owed on the loan. With this sort of loan you will risk losing your home, but there are many advantages as well. You will have a home to live in and not have to pay rent. Once the mortgage is paid off you will not have to pay to live there. When you apply for a mortgage, the lender will check your finances and only lend to you if they feel that you will be able to repay it and so there is less risk than with other loans that do not do this.

A similar situation may happen when you buy a car. If you need a loan then the car may be used a collateral and then if you do not manage to make all of the repayments it can be taken and sold in order to cover the cost. The checks on this sort of loan are not so thorough so it will be up to you to decide how much of a risk you think it will be. If you need a car to get to your job and you cannot pay for it without a loan, then you have a little choice. However, if you choose a low price car that offers good value for money and put money by in case you are in a situation where you are low in income and so risk not being able to make a payment.

There are other types of loan where you can use your property as security as well. These are likley to be personal loans. It is worth considering whether you really need the money enough to put your home or car at risk. It will be a personal decision and very much depend on what you are using the loan for. It maybe for something essential, so you feel it is well worth the risk or it could be for a luxury item and therefore may not be worth the risk.

A log book loan is another example of a loan where you will use your car as collateral. These are set up depending on the value of your car minus any other loans held against it. If you miss a repayment they will repossess the vehicle. How much risk you are willing to take will depend on what you want the money for. You may feel that the money is extremely important and you are willing to risk your car. If you need that car for work though, it is important to be really careful as losing the car could mean losing your job.

So calculating whether a secure loan is worth the risk is not easy. Only you will know how much you need the money and whether you think that you will be able to keep up the repayments. If you have more than one income in the household or a very secure job then this is less of a risk, but it is worth considering what might happen if you do and how you will manage. If there is more than one wage earner in the house, this will help, but putting money aside to help you cope should you face financial difficulties could help as well. It is worth thinking about whether you really need this money or whether it is better not to risk a secure loan to get it.

Advice

How to Find the Cheapest Loan

Looking for a loan does not tend to be much fun but it is a good idea to make sure that you do spend some time doing it. This is because they can vary a lot in many different ways and you want to make sure that you get the loan that is the best for you.

You may think that you will have to approach lots of lenders and get quotes to see which loan will be the cheapest. However, there are now much easier ways to do this. It is worth noting though that if you are comparing the prices, that the advertised price may not be the one that you actually get. Often the interest rates are the best possible ones and a lender may not give you those rates if they feel that you are a risk; perhaps because you credit record is not good enough, for example. However, all lenders will look at your credit record and it is likely that they would all assess risk similarly and could all potentially raise their rate from the advertised one.

If you do not have a lot of time to compare then it could be wise to use a financial advisor. If you find an independent one then you will have to pay them, but it can be worth it. They know about all of the loans that are available and will therefore be able to let you know which one will suit your needs the best at the lowest price. Not everyone wants to pay someone like this, perhaps because they think that it will be too expensive or because they would rather do the research themselves.

It is worth taking a look at some of the comparison websites. They have these available for loans and they will be able to help you see which have the best interest rates. These can save you having to look at lots of lenders, but it is worth noting that there are some lenders which are not on these comparison sites and the sites tend to have a limited amount of lenders on them. This means that you may still need to do some research yourself, looking to see what else is available.

It is really important to look beyond the interest rate of the loan though. There are other costs that you need to consider as well. Most loans will have a fee which will charged for setting it up. There will also be fees for other things, including late repayment fees. If there is any chance that you might miss a repayment, then it is worth being aware of how much this will be. Even if you are confident that you will make the repayments it is good to just take a note of this information, just in case.

Of course, the rates may change during the loan term and this is when calculating which is cheapest is difficult. If the base rate changes, it is likely that all loans could change as well. It is also possible that rates may change in between base rate changes too. It is impossible to predict when this might happen though. You could look back at previous rate changes and see how frequent they are with that particular lender, but past behaviour does not always predict future behaviour. It may be worth finding out what other customers think and if they feel that the rates are competitive and have remained so. You may feel that this is not something that you will want to bother to do because it is so unpredictable. One way to protect against this is to look at a fixed rate or a tracker rate but these can have some disadvantages and may not always be an option on all types of loan.

So there are several approaches that you can take to finding out the best loan rates. It may be that you are happy to do the research yourself or that you would rather pay someone to do it for you. It is worth looking carefully and considering all of your options. This is because loans can be really expensive and picking the cheapest one can make a huge difference to how much your repayments will be as well as how much the loan will cost overall.

Borrowing

Should I Borrow Money if I am not Working?

If you do not have a job then borrowing may not be a good idea. There are many reasons for this, but there may also be some circumstances where it might be something that could be worth considering.

Most lenders will be reluctant to let anyone borrow money who has no job. They may ask about income or look on your credit report and will worry if the applicant has no job. This is because it will reduce their ability to be able to repay the loan and therefore they could be seen as too high a risk to take on. This thinking is probably sensible as with no job, income is likely to be low and this could mean that it will difficult to make any repayments. Consider how you will manage to make the repayments without a job, where you find the money from and how you will manage to pay your other expenses.

Some loans will not look at your credit rating and some you may already have access to, such as a credit card or overdraft. This means that you could be tempted to borrow and have no resistance to lenders in doing so. However, you should think hard about whether this is a good idea.

A credit card can seem like a great way to borrow because you only have to pay back a small amount each month. This means that you could be able to manage more easily as you will not need to spend a big chunk of money in repayment. If you are out of work you may be glad of this extra money as well because you may be struggling to manage without an income. However, you need to be careful. If you borrow a lot of money this way then you could end up with the interest really adding up. Paying the minimum off each month may feel like you are doing fine, but you will be paying back the interest and hardly paying back anything you owe. This will really add up over the months and years and the amount that you end up paying back, including that interest, could be huge.

An overdraft could also seem like a good way of borrowing money but this could be even more risky. You get charged daily for being overdrawn and so if you are overdrawn for a long time, it can be really expensive. You will be charged until the overdraft is cleared. This usually happens when money goes into the account, but if you are out of work then there may be none going in or very little and this could mean that it will not be paid off for a long time. This could lead to very big accumulations of fees and it would be advisable to steer clear of these if you can.

A short term loan where no credit check takes place is something which many people without work may consider if they need some extra money. These have to be paid back on your next payday. This may not always mean that you need to be employed, it could be when you next get some income, perhaps from benefits. However, you will need to be very confident that you will be able to afford to pay it back when necessary and that you will also be able to manage financially once it is paid back.

So borrowing money when you are not working is difficult but not impossible. However, it is wise to think very hard before you do. Consider how you will pay it back and how much it will cost you. Think about why you want the money and whether you really need it. Think about the alternatives and whether there is something that you can do which will mean that you will not have to borrow the money. You may be able to wait to make the purchase and will hopefully be able to find a job before you do. You might be able to save up some money to buy the item so that you will be able to buy it without borrowing or perhaps just not buy it at all.