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Personal Loan AdviceBy John Mussi |
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What if I can't repay my personal loan? The main risk for the lender is that you cannot keep up the loan repayments. Some personal loans are secured, usually against your home or some other significant asset.
This means that if you do not keep up the payments the lender can seize and sell your asset to recover the loan. Most personal loans however are unsecured i.e. not secured against an asset. If you do not keep up the payments, the lender can take you to court where you could be ordered to pay off the loan over a renegotiated term and under specific terms, perhaps in smaller monthly amounts spread over a longer period. Personal loans can be either secured or unsecured. A secured loan is secured on a major asset, usually the borrower's home.
You risk loosing your home as it can be seized by the lender and sold to repay your debt, although this is usually a last resort for most lenders. Secured loans are commonly used when borrowing larger sums of money over a long period of time. The other type of personal loan is an unsecured loan.
If you don't have a home or pay a mortgage then you can only take out unsecured loans. The interest rate on its own does not give the full picture as it doesn't include all charges. Once you have answered all the other questions you are ready to start shopping around for the best value loan for your circumstances. Unless you get lucky first time then the only way to get the best loan is to do just that, shop around and compare rates. This is usually time consuming but often worthwhile as the difference from one lender to another is often in the hundreds. Loan Brokers claim to do the searching for you but are not necessarily the cheapest and sometimes have a large fee so make sure you check out lots of companies for yourself.
The amount of money you need to borrow will probably be the same as the cost of the holiday, car, or any other item you intend to purchase. In any case that is a decision for you to make, the only advice I can offer is to make sure you only borrow the amount of money that you really need that you can afford the repayments. In order to work out how much you can afford to pay back you'll need to have a money management plan. This plan contains your budget, all household income and all household outgoings and helps you to identify what you want to do with any left over money at the end of the month.
Once you have finished your plan you can see how much you can realistically afford to pay each month. That amount should then determine how much you borrow and over what time period you pay it back. What is a realistic repayment period for me? Its very temping to opt for a long repayment period as it means you can either pay back a smaller amount each month or even choose increase the amount of money you borrow. However you should remember that the longer the term of the loan the more money you will pay back in total (interest and charges).The repayment table below demonstrates the extra cost of longer repayment periods.
However it's equally important to not end going for the shortest possible repayment period you can afford and leaving your monthly balance sheet at zero with no room for movement should you spend more than you budgeted for in any given month. So always be careful to allow for any surprises and make sure you leave enough money so that you can enjoy yourself from time to time. |
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About the Author |
| John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website. |
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