Adverts continually bombard us with ways to borrow money…..``Hey, do you want a credit card?.....Need an any purpose personal loan? …Looking to get on the road with a car loan or higher purchase agreement?…. Perhaps it is time to buy a home with a mortgage, or find a better deal on you current home with a remortgage?... Need finance for those replacement windows and doors, or even a new kitchen? Going on holiday soon - how about a few hundred pounds to spend while you are there with a short term pay day loan?``…
The promise is you can always have it now and pay later….is that the right approach to loans and credit in the UK though?
It seems that when it comes to borrowing money in the twenty-first century there are ever increasing ways to get the loans and / or finance you want to buy the items you want. Some are entirely appropriate, some can be harmful to your future borrowing requirements and some could lead to reckless spending habits.
Let`s take a look at some of the most popular ways to borrow money in the twenty-first century, we`ll talk about what types of credit are appropriate, when they could be used to your advantage and when it`s time to move on . Sometimes you can use borrowing strategies to give a structured debt solution to get the things you want by spending the least amount of money.
One of the ways to borrower larger amounts of capital in the twenty-first century is to use your home or other properties as collateral. The benefits come in the form of being able to take out medium to large loans of up to £150,000 over longer terms from 60 to 300 months, with interest rates which can be lower than many unsecured loans. One key element is that as the loan amount gets larger there are less unsecured options available, until eventually you reach a level that has no unsecured options. Rates from secured loan lenders can often be fixed for either short or extended periods of time. The key here is to keep your repayments affordable, that`s where the rates and terms can really help.
A UK Homeowner Loan can be used for most purposes from consolidating other debts, to improving your home or other properties or even purchasing other properties.
Because of the larger sums of money that are usually raised and the often long term that this kind of loan lends itself to there are some purposes that may be more appropriate than others. For example if you were to buy a used car that would depreciate in value very quickly, then using a loan secured against your house might not be a good way forward, you may find that you are still paying for the car long after it has been consigned to the scrap heap. On the other hand if you wanted to make extensive improvements to your home that may add to its value then a UK Homeowner loan could well be the way forward , after considering other options.
It is important not to ignore the risks here. Simply put the lenders may offer better rates because they will put a charge against your home (in the same way that your mortgage company does when you buy a home) which will stay in place until your loan has been settled. This effectively protects the lenders capital by giving them security to recover their money if required. As with any credit there are risks and benefits and the very real risk with a UK Homeowner loan is if you are unable for any reason to maintain the payments and cannot come to a suitable arrangement with the lender, your home could be repossessed.
Ah yes….. the good old credit card has been around for quite some time now. Legend has it that the whole concept of a credit card came about when a well to do chap went to eat out with his friends at the Major`s Cabin Grill Restaurant but forgot to take his wallet with him. Although the gentleman`s wife settled the bill. This lead to conversation between the restaurant owner and the embarrassed customer who, between them came up with the concept of the Diner`s Card and the rest is as they say history . Basically this could be seen as a formalisation of a `tab` you may run up in a pub you are well known in.
Seventy years later the humble credit card has become a must have finance weapon of choice holstered in wallets across the free world and its popularity has lead to multiple specialist cards. There are `store cards` tied to shopping chains on the promise of preferential rates to persuade customers to remain loyal. There are discounted new customer credit cards that offer you zero percent interest rates as in introductory offer or as an incentive to transfer your existing credit card balances. There even cards which are issued specifically to use at petrol stations for those who drive for a living.
Whatever your credit card does for you the important thing to remember is that unless you make substantial repayments every month or indeed settle the balance every month the amount you borrow will remain static and you may end up paying back far more than you originally borrowed. If you find yourself in a position where you cannot afford to make significant repayments to your credit card you may benefit from a debt consolidation loan. However if you do consolidation debts you need to fix those spending habits thereafter, otherwise you will end up in the same boat on your cards with a debt consolidation loan on top.
A personal loan can be a great way to put a clear end date on your credit card debts, unlike a credit card you borrow the money over an agreed term and when you get to the end of the term there is nothing more to pay. Because a personal loan is not generally secured against your home there are fewer risks involved but beware however the rates are generally higher than a homeowner loan.
As with other types of borrowing there are some types of loan that can be inappropriate for the purpose. For example while a personal loan can be a great way to buy a car or to consolidate other loans and credit cards that you want to be rid of subject to relative rates and being able to borrow enough - which is where you may find secured options come back on the table. It`s perhaps not a good idea to fund habits such as gambling which can grow into a big problem, or for speculative large purchases such as art and end up paying interest on something that loses money or even ends up being worthless. One big positive about personal unsecured loans is that they do not require security for the lenders in terms of property and therefore are available to both homeowners and tenants.
Unless you happen to be particularly wealthy or stand to inherit a princely sum, by far the most popular way to buy a home is with a mortgage. The mortgage lender will generally fund the lion`s share of the purchase (up to around 80% in most cases) with you putting a deposit down to cover the rest. The interest rates are generally lower than other types of borrowing (even homeowner loans) and the terms are generally the longest of any repayment style loan available. Bear in mind once again the risks associated with both purchase mortgages and remortgages, in that the lender can seek possession if you do not keep to the terms of your mortgage loan agreement.
So what about remortgaging then? Well remember the long term borrowing that we talked about? Imagine that you bought your house when interest rates were high - you wouldn`t want to be paying a higher rate of interest while everyone else cashed in on great mortgage deals would you? Well in this case you can move your mortgage to a cheaper lender or a cheaper product and potentially save thousands of pounds over a number of years.
If on the other hand you wanted to borrow more money to say, improve your property or buy another property all together, depending on the amount of equity that you`ve built up you could also do this via a remortgage. This could be either with the current lender or look at an alternative to get your extra funds whilst also obtaining a lower interest rate.
The advantage is that your interest rate will rarely be lower than it is with a first mortgage but the price of the low rates is that your risk will increase with every pound that you secure against your house. Even so if you need to loan a great deal of money as cheaply as possible over a long period of time then a remortgage may well be the best solution.