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Overview
of secured loans and unsecured loans
Interest
Rate
An interest rate is the amount
charged for a loan. It is usually expressed as a percentage
of the loan amount that is charged on an annual basis.
Because lenders often calculate
interest rates differently, statutory regulations set
out the calculation for the Annual Percentage Rate of charge
(APR).
The APR is the true rate of
interest charged on a loan taking into account the total
cost of interest and other charges (e.g. broker's fees /
legal fees). The APR is intended to give consumers a level
playing field to compare personal loans against each other.
For information on how the APR is calculated, please refer
to the website of the Office of Fair Trading
(http://www.oft.gov.uk/).
Repayment Schedule
The repayment schedule on a loan
stipulates the length of time over which the loan will be
repaid and frequency of the payments. Together with the
interest rate, this information determines the size of the
loan repayments. For example, if you wish to borrow £5,000
over 3 years at an APR of 9.7%, the monthly repayments will
be £159.77 and total repayment over the loan term would be
£5,751.70.
Credit
Insurance
Credit Insurance is an insurance
policy that continues the repayments of a particular debt
in the event of the policyholder becomes financially unable
to do so because of illness, death, redundancy, or any other
specified cause. Most lenders offer credit insurance on
their personal loans and include the premiums on the
insurance as part of the monthly repayments on the loan.
Credit insurance is not included in
the calculation of APR so a loan with or without credit
insurance would have the same APR but different monthly
repayments. For example, if you wish to borrow £5,000 over 3
years at an APR of 9.7% without credit insurance, the
monthly repayments will be £159.77 and total repayment over
the loan term would be £5,751.70. This same loan with credit
insurance would still have an APR of 9.7% but the monthly
repayments would be some amount higher than £159.77.
Early
Repayment Penalties
Some lenders levy penalties if you
choose to repay the loan before its final maturity date. You
should carefully investigate these charges if you think that
you might want to pay the loan back early.
Overview
of secured loans and unsecured loans
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