A loan is a formal arrangement, usually for a fixed period of time (which you agree at the start).
A loan is a debt provided by an entity (organization or individual) to another entity at an interest rate, and evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment.
In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time.
Types of Loans
Unsecured loans
With an unsecured loan, you borrow money from a bank or another lender and agree to make regular payments until it’s paid in full.
Because the loan isn’t secured on your home, the interest rates tend to be higher.
If you don’t make the payments, you might incur additional charges. This could damage your credit rating.
Also, the lender can go to court to try and get their money back.
This could include applying for a charging order on your home – although they should make clear upfront, whether or not this is part of their business strategy.
Some loans might be secured on something other than your home – for example, it could be secured against your car, or on jewellery or other assets that you pawn, or you could get a loan with a guarantor (such as a family member or friend) who guarantees to make repayments if you can’t.
Secured loans
Secured loans are often used to borrow large sums of money, typically more than £10,000 although you can borrow less, usually from £3,000.
The name ‘secured’ refers to the fact that a lender will require something as security in case you cannot pay the loan back. This will usually be your home.
Secured loans are less risky for lenders, which is why they are normally cheaper than unsecured loans.
But they are much more risky for you as a borrower because the lender can repossess your home if you do not keep up repayments.
There are several names for secured loans, including:
Home equity or homeowner loans
Second mortgages or second charge mortgages
First charge mortgages (if there is no existing mortgage)
Debt consolidation loans (although not all of these loans are secured)
I am in debt and I need help
I'm in debt!! How do I handle this? What should I do? It seems to be getting worse.
Okay, so if you are reading this page your creditor(s) are currently trying to contact you. They've told you to pay up or face the consequences. But you just don't have the money to pay. They might even have passed your debt over to a debt collection agency.
Phone calls, Letters and Home Visits
The debt collection agency are now harassing you constantly with phone calls. They are sending you letters and threatening to visit you at home.
What are you going to do?
Well, the first thing you need to know is that you are not alone.
There are many people all over the country that are in the same situation as you are. The more affluent they are, they more trouble they seem to be in. There are various reasons why people get into debt. From being made redundant from your job, a reduction in working hours, welcoming a new baby to the family, sudden illness, your business not doing as well as expected, struggling to adjust your household expenditure to the current climate of austerity or just over spending and living beyond your means.
Is there a solution?
Yes!
There are various solutions available to help you pay your debts off in a way that ensures your repayments are affordable.
In most instances, the interest charged on your debts can be frozen so the debt doesn't continue to increase.
You can then agree a repayment plan with your creditors at a sensible amount that ensures you can still cover your living costs within reason.
