Uk Loan Terminology Explained

How are loans charged?
A personal loan is a lump sum that you typically borrow from
your bank or building society bank, or through a retailer where
you are buying an expensive item such as a car or domestic
appliance You agree to pay back the loan over a fixed number of
months (called the “term”) by making set monthly payments There
may or may not be an arrangement fee when you take out the loan,
depending upon the lender chosen You can usually pay extra for
payment protection insurance which pays your monthly payments
for you if you are unable to work because of illness or
redundancy Interest is charged at a fixed rate dependent upon
the amount you borrow Most lenders will allow you to pay off a
personal loan early ie before the end of the term, however
there is often a charge equal to part of the interest you would
have paid had you kept the loan for its full term What is APR?
What you pay for a personal loan can be expressed as an ‘Annual
Percentage Rate’ or APR APR takes into account: – the interest
on the loan; – any other charges you must pay eg any
arrangement fee or the cost of payment protection insurance -
the term of the loan You do not need to know how to work out an
APR The important thing is that APR shows the cost of borrowing
on a standard basis so you can compare the APR of one lender
with another and instantly see who is the cheaper lender for the
same borrowed sum and term A loan with a lower APR is cheaper
than a loan with a higher APR The APR also lets you compare the
cost of personal loans with other types of borrowing such as
credit and store cards It is important to remember though that
APR does not take into account charges such as an early
repayment charge if you pay off the loan before the end of its
term What are loan terms?
Not to be confused with term (duration of a loan) terms are
special conditions and or exclusions a lender may impose
depending upon personal circumstances or the purpose of the
borrowing Some loans are restricted to particular uses eg home
improvements and not for the purposes of debt consolidation etc
You may be required to open a current account with the lender if
you are not an existing banking customer You may also be
required to take out payment insurance but usually this is
optional Check what charges are made if you decide to pay off
the loan early
What if I can’t repay my personal loan? The main risk for the
lender is that you cannot keep up the loan repayments Some
personal loans are secured, usually against your home or some
other significant asset This means that if you do not keep up
the payments the lender can seize and sell your asset to recover
the loan Most personal loans however are unsecured ie not
secured against an asset If you do not keep up the payments,
the lender can take you to court where you could be ordered to
pay off the loan over a renegotiated term and under specific
terms, perhaps in smaller monthly amounts spread over a longer
period This results in a County Court Judgement (CCJ) against
your name and you will probably find it hard to borrow elsewhere
if you have a CCJ against you As an absolute last resort when
someone has difficulty repaying significant debts bankruptcy is
an option although the implications of bankruptcy can be far
reaching

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