However while home loans are the easiest type of borrowing to acquire, searching for the best deal with the lowest rate of interest can be time consuming and unless you understand loans in general they can be confusing. A far easier way to get a loan of any nature is to go to an online specialist and let them search through the UK's top lenders on your behalf.
A home loan is also called a secured loan and with the home loan you can borrow more money than with a traditional personal loan as well as pay back the loan over a longer period of time. However, as you are putting your home at risk it is essential that you consider whether the reason for the loan is worth putting the roof over your head at risk for the number of years you have chosen to take the borrowing for.
Another factor you will have to consider is that the longer period of time you take the loan over, the more interest you will pay and of course the amount of interest that you will pay will be determined by the APR of the loan. The APR for home loans can vary greatly from lender to lender and a specialist will be able to get the cheapest rates and best deals for you loan and deliver them to you along with the key facts regarding the home loan.
It is essential that you do read the key facts as this is where the terms and conditions of the loan can be found along with the small print and as your home is at stake you should make sure that you understand the conditions and in particular the total amount you are going to be paying for the home loan.
A great many people think that a loan is a loan, and that's it, but the facts are very different.
So assuming that you're looking for a loan, let's take a quick look at the different types, and at the different decisions that you'll need to make, and that way you'll soon understand what makes them different.
Starting with the broad brush strokes, there are secured and unsecured loans, and there are personal loans, home loans, and loans for various purchases such as an automobile. Then there are commissions, fees, and interest rates, plus additional things like the duration of the loan that must also be taken into account.
SECURED LOANS
In essence, a secured loan is simply a line of credit that is guaranteed by some kind of personal collateral, and the collateral will typically be more valuable than the amount that's being borrowed, and if it isn't then the interest will most likely be a little bit higher.
A classic example of a secured loan would be a home loan, but as you most probably know, nearly all the banks are in big trouble right now because they assumed that house prices could only keep going up, and they offered loans to almost anyone that they could tempt into buying real estate.
They merely required deposits that were nonsensically low in order to encourage people to borrow, and it was a terrible business practice that was simply rooted in greed, and it's now causing a lot of distress to everyone that got caught up in it.
To add insult to injury, the banks have now gone in completely the opposite direction, and made it so difficult to qualify for a home loan, that even people with very high credit scores are failing to qualify. It's still possible to get a home loan of course, and it's obviously easier if you already have a property that has a large amount of equity in it that will allow you to put down a good sized deposit on your new purchase.
Most lenders now require a minimum down payment of 20%, and if it's anything less then you'll need to obtain private mortgage insurance.
Home loans can basically be split into two categories, a fixed interest rate loan, which means that the interest rate that you agree to when you take out the loan will remain the same for the life of the loan, and a variable rate loan that will float according to market conditions, and it's pretty clear that the only direction in which a variable rate loan is likely to go right now, and it's up.
Home loans are usually for 15, 20, 25 or 30 years, and the shorter the better as far as cost is concerned, because you'll pay far less in interest.
On a thirty year loan for example it's not unusual for the first fifteen years to be exclusively interest, meaning that after fifteen years, that you won't have reduced your indebtedness one iota.
An automobile loan is another example of a secured loan, with the car itself being the collateral, so if you stop paying, then the bank repossesses your car and sells it, for hopefully more than you owe on it.
It's common for the auto-dealer to arrange financing for the buyer, but unless the loan is being subsidized by the manufacturer you'll more than likely get a better rate from a bank, or a third-party lending agency.
A car loan will most likely be for between 1-7 years, and perhaps surprisingly, they can even include a period of time when no interest at all is charged.
Once the interest does start accruing however, it will generally be between 7-14%, and if you decide on a shorter period of time, then you'll pay quite a lot less interest, not just because of the shorter repayment time, but also because the interest rate will be lower too.
UNSECURED LOANS
An unsecured loan, by definition requires no collateral, but unless you have excellent credit, then the interest rate will be extremely high.
The best illustration of an unsecured loan, would be what is most commonly known as a personal loan, and not only does this kind of loan usually have to be paid off very quickly, but the interest rate will be around 12%, and if you don't pay the loan back on time then the accumulated interest will escalate extremely quickly.
THE BOTTOM LINE
Which type of loan you apply for will depend on your personal circumstances, and also on what you want to buy, but before you make any final decision, please make sure that you understand exactly what you're getting into, and how much it will cost you.
Both Louis Rix & Michael Redbourn are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Louis Rix has sinced written about articles on various topics from Used Car, Finances and Used Car. Louis Rix is Director of Netloans Ltd, a leading Secured Loan Broker for UK Homeowners offering homeowner loans and secured loans for any purpose, ensuring that their cust. Louis Rix's top article generates over 246000 views. Bookmark Louis Rix to your Favourites.
Michael Redbourn has sinced written about articles on various topics from Finances, Credit Cards and Fast Cash Loan. The author of this article was a top film sound editor for many years and he produced a film for Columbia at a very young age. One of his primary interests is economics, and one of his websites ->. Michael Redbourn's top article generates over 14800 views. Bookmark Michael Redbourn to your Favourites.