Understand Borrowing Before You Choose
A loan can help spread the cost of a large purchase or provide access to money when you need it.
But borrowing has a cost. Interest rates, fees, repayment periods and the type of loan can all affect how much you ultimately repay.
Understanding those differences can help you decide whether borrowing is appropriate and compare your options more effectively.
Personal Loans
A personal loan normally allows you to borrow a fixed amount and repay it through regular payments over an agreed period.
Personal loans are usually unsecured, which means the borrowing is not directly secured against your home or another asset.
Before choosing one, consider the interest rate, monthly repayment, loan term and total amount repayable.
Secured Loans
A secured loan uses an asset as security for the borrowing. For homeowners, this may mean borrowing money secured against your property.
Secured borrowing may allow you to borrow larger amounts or repay over a longer period, but it also introduces an important additional risk.
Your home or other asset could be at risk if you do not maintain the repayments.
Compare Loans
A lower monthly repayment does not necessarily mean a cheaper loan.
When comparing borrowing, consider:
- How much you are borrowing
- Interest rate
- APR
- Monthly repayment
- Repayment term
- Fees and charges
- Total amount repayable
- Early repayment conditions
- Whether the borrowing is secured
Then insert the same green block you used on Mortgages and Insurance:
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Understand the True Cost of Borrowing
It can be tempting to focus on one number when choosing a loan.
A low interest rate may look attractive. A smaller monthly payment may appear more affordable.
But extending borrowing over a longer period can sometimes reduce the monthly payment while increasing the amount you repay overall.
Start by asking how much you need to borrow, whether you can comfortably afford the repayments and what the borrowing will cost altogether.
Understand First. Compare Better.
Borrowing should work with your wider finances rather than simply solve an immediate need for money.
Understand the commitment first. Then compare the available options based on cost, affordability, flexibility and risk.
Energility
Understand More. Spend Less. Live Better.