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Borrowing Money

Legal Knowledge (3)>Money (1)>Borrowing Money (0)

About this section

If you find your outgoings exceed your incomings or if you have an unforeseen expense or need to fix a temporary cash flow problem, you may wish to consider taking out a loan. You should only ever borrow money from a reputable organisation and the decision is not one which should be made lightly.

Loans

A personal loan is when you borrow an agreed sum and pay it back ,with interest, over a specific period of time. You must be over 18 in order to apply.

Loans vary according to:

The amount borrowed
The interest rate
The type of rate (fixed or variable)
The term (length) of the loan
The deposit
Any associated fees
Insurance required by the lender

Unsecured Loan

An unsecured loan means that a lender is relying on your commitment to pay back the amount borrowed. Because of this, the interest rate is usually higher than other types of loans. With an unsecured loan, you will have a fixed repayment schedule and your debt will be paid off within a set time - providing you meet the payments.

Secured Loan

A secured loan gives the lender security when borrowing money. If you fall behind on the repayments, the lender will have the option of claiming the money back by repossessing the asset you secured your loan against. Secured loans tend to have a lower interest rate, because there is less risk for the lender.

Overdrafts

Another option to consider if you need to borrow money is requesting an overdraft on your current account. This will allow you to borrow - up to a certain limit - when there is no money in your account, and can be used as a cash flow remedy. This is a flexible way of borrowing - but should only be used on a short-term basis.

Shopping Around

It is wise to shop around before choosing a loan. You should compare the Annual Percentage Rate (APR) of each loan to help decide which is the best option for you. The APR shows the cost of borrowing on a standard basis. It takes into account the interest you must pay, other charges such as arrangement fees, the cost of payment insurance and the term of the loan.

Before you take out a loan you should be sure that you will be able to afford the repayments. If you do not manage your money efficiently you may end up in serious debt. This will have an effect on your credit history and could make borrowing more difficult in the future.

Payment Protection Insurance

You may wish to consider taking out payment protection insurance to cover regular payments you make on a loan. This will give you a regular income if you find you are unable to work due to an accident, sickness or unemployment. It will cover repayments, or a percentage of the repayments, for mortgages, loans, credit cards or catalogue payments.

However, most policies will not pay out straight away and there may be exclusions and limitations on the insurance. For example, they will only pay out for a set period of time and some sickness conditions may not be covered. Make sure you are aware of what you are covered for and whether it is worth the extra cost before taking out any payment protection insurance policy. Ensure any insurance broker is authorised by the FSA.

UKLA Direct is a trading name of TLA Direct Limited, a company registered in England and Wales (Company Number 06643412) whose registered office is Pegasus House, 463A Glossop Road, Sheffield, S10 2QD. TLA Direct is regulated by the Ministry of Justice in respect of regulated claims management activities. It's registration is recorded on the website www.claimsregulation.gov.uk CRM14556. In the event that you instruct a UKLA solicitor following introduction through this service, the solicitor may pay a fee, dependant on the type of work, to TLA Direct for marketing and administration services. This fee may either be a fixed amount, a percentage of up to 15% of the fees billed by the solicitor or nothing. In no circumstances will this fee be added to your quote/bill. Your solicitor will advise you of any such fee in their letter of instruction.