Loans

Personal loans

What’s a personal loan?

A personal loan is when an amount of money is borrowed from a lender (such as a bank) which is then repaid in fixed amounts over an agreed number of months (or years).

On most loans, you’ll be charged interest on top. It depends on the interest rate you’re offered at the point of sale, which will be affected by different factors like the amount you’re borrowing, the length of the loan and your credit rating.

What does an ‘unsecured loan’ mean?

Unsecured means you’ve borrowed money but haven’t had to back it up (or secure it) with an asset, such as your property or car (if this is something you own).

Consider:

• How long are you going to be paying this loan off? Sometimes you’ll find you can make lower payments if the term of the loan is longer – but remember you need to weigh this up as it often means paying more interest, and consider whether you’re happy paying the loan back for that amount of time.
• Let’s consider the interest in a bit more detail. What is the interest rate of the loan? This will be calculated based on the length of the loan and your own credit rating, so not necessarily what’s advertised! Does the interest rate vary? It’s important to check this carefully before agreeing or committing to anything.
• Have you had a good look around other loans and lenders to see if you’re getting the best deal?
• Do you really need this loan?

Remember, if you’re already struggling with debt, it’s best not to take out any further credit, and instead speak to us for help with sorting out your budget and an affordable amount to pay back to your debts, so you can become debt-free as soon as possible.

I’ve already got a loan and I’m struggling with paying it back – what do I do?

Have you spoken to your lender to see if they can offer any further assistance? It’s important to make them aware you’re struggling as they might be able to offer you some support.

We’re here and ready to help you get back on top of your debts too. We will go through all your outstanding debts with you, work out an affordable repayment plan, and help you set up a budget to use going forward to make things easier to manage.

If you’re looking to go down the debt consolidation route, have you considered whether it might be better to speak with a debt adviser first? They may be able to help you find a more affordable and secure way of paying back your debts.

Secured loans

What’s a secured loan?

Unlike an unsecured loan, you do have to secure a secured loan against an asset – for example, your property. The danger with this is that your lender has the legal right to sell your asset if you don’t keep up with your repayments – in the example of your property, you risk this being repossessed.

Depending on your agreement, you may be able to pay off a secured loan earlier than planned but watch out because there may also be penalties for doing so (known as ‘Early Repayment Charges’). It’s important to make sure you fully check the Terms and Conditions before committing to any agreement.

One common reason people opt for a secured loan is to consolidate existing debts. The interest rates are often lower than with unsecured personal loans because of the reduced risk to the lender you’re borrowing from. They have the security of your asset to sell if you fail to pay back the loan. If you’re looking to go down the debt consolidation route, have you considered whether it might be better to speak with a debt adviser first? They may be able to help you find a more affordable and secure way of paying back your debts.

If you’d still like to proceed down the debt consolidation route, it’s important to get expert advice from a financial adviser before securing a debt to your home.

I’m struggling paying back a secured loan – what can I do?

Have you spoken to your lender to find out what your options are and if there’s any support they can offer you? It’s a good idea to make contact and explain your situation as soon as you can. If you’ve had a change in your circumstances, make them aware and provide them with any updated financial information as required.

Payday loans

What’s a payday loan?

A payday loan is a short-term, unsecured loan which is sometimes used by people when they haven’t got enough income to cover their outgoings until payday. Amounts borrowed can range from £50 to £1,000+ but it’s a difficult debt to manage as you’ll always be required to pay the full amount back by your next payday.

What makes this an even more difficult debt to manage is, although it’s a “short-term” type of loan, the representative annual percentage rate (APR) is high and interest rates can quickly turn this into an overwhelming debt by the time payday does come around and you’re expected to pay it all back.

Considerations

Always consider your alternative options first, payday loans are incredibly difficult to stay on top of – we highly recommend contacting us to help you find an alternative solution for keeping on top of your finances, and we’re here to help as soon as you’re ready.

No matter how much you borrow, you’ll have to repay everything (including added interest) by your next payday

Lenders who offer this type of loan can set up a Continuous Payment Authority (CPA) on your bank account, this means they can automatically take repayments back from you on the due date – if you don’t have the funds available, you could be in danger of additional bank charges

If you’re still considering taking out a payday loan:

• Check the Financial Services Register which will tell you whether a price comparison website is regulated by the Financial Conduct Authority (FCA)
• If the website is regulated, use it to find the best available deal
• Before agreeing to the loan, the lender should check whether you’re able to afford the loan (whether you can pay it back), explain the main features, how much you’ll need to pay back and what happens if you don’t. They should also explain how CPAs work – and how they can be cancelled
• Any adverts for payday loans must include a warning that late repayments can cause serious financial problems
• From 2 January 2015, there’s been an interest cap on payday loans of 0.8% per day – no borrower should have to pay back more than twice of what they’ve borrowed

I’ve taken out a payday loan but I can’t repay it – what now?

In the first instance, speak to your lender and see if they will agree to ‘rollover’ the amount to the following month. This will involve making a new agreement for the repayment of the original loan.

Beware though, extending your loan or agreeing to a ‘rollover’ means you’ll have to repay more money as you’ll be charged extra interest, fees and other charges.

A lender shouldn’t ‘rollover’ the loan more than twice and each time they do this they should provide you with an information sheet signposting you to free debt advice from companies like us.

If you can’t afford to repay the loan, instruct your bank or card provider to stop the payment being taken – you must do this at least one day before the payment is due.

Catalogue loans

What’s a catalogue loan – or catalogue credit?

Catalogue loans are used to make purchases and spread a cost over several payments to make things more affordable.

However, this is often an expensive way to borrow, as catalogue loans come with high-interest rates – meaning you’ll end up paying back more than you’ve actually spent in the long run. Some people choose to do this weekly, others monthly – and some people don’t end up fully paying off their purchase for a year or two.

Other names for a catalogue loan that you might recognise

You might hear a catalogue loan – or catalogue credit – being referred to in other terminology like a ‘shopping account’ or a ‘mail order account’ and people often refer to their credit purchase as being bought ‘on account’.

Considerations

• Do you really need this item?
• Can you wait until you have the money to pay for it upfront instead of taking out catalogue credit?
• Can you buy the item more cheaply elsewhere?

What happens if I miss payments?

We’ve broken this down further into some steps of what to expect if you start missing payments:

• If you miss a payment, you may be charged a late payment free or you could lose any interest-free period and be switched to a high interest rate
• If you continue to miss payments, the debt can grow very quickly, so it’s important to act fast
• If you know you’re going to miss a payment – call the company and explain your situation. They may be able to agree to temporarily lower your payments and it may also prevent you from losing the interest-free part of your deal (if you have one)
• The company will ask you to catch up with arrears
• If you can’t, or don’t pay enough to keep up, the account will ‘default’ – an account defaults when you break the terms of the credit agreement. The debt can only default once but, after this happens, further action can be taken to collect the debt from you
• Your account will be closed, and the company may send you a Default Notice
• If the default is applied, it’ll be recorded on your credit file and can affect your credit rating

I can’t pay my catalogue debt back – now what?

If you fail to keep up with the required minimum payments on this type of debt, the catalogue company will contact you and ask you to catch up with the arrears.

If you can’t catch up, your account will ‘default’ and further action could be taken against you.

Your account will be closed so you can’t buy any more goods and the debt could be passed onto a debt collection agency. Court action may also be taken against you.

If it’s all you can afford, you may not be able to pay more than the regular minimum payments. However, paying just the minimum might not cover interest, which can cause debt to build up and become harder to manage. Where possible, try and pay over the minimum requirements to help shorten your repayment time and keep extra charges to a minimum.

I want to cancel a catalogue purchase – how do I do this?

If you’ve bought something but had second thoughts, you do have a right to return the goods. There are some things to note here:

• You can usually cancel the order anytime up to 14 days after you’ve received the goods (but double-check this with the relevant company as this may differ)
• You must return the goods and you might have to cover postage costs to do this
• You have a right to a refund if the goods weren’t as described or of a satisfactory standard
• If you’re struggling with making full repayments it could be an option to ring up the lender and ask if it’s possible to make reduced payments so you’re still paying something off towards your debts.
• Look at your budget and see if there are possibilities of cutting back in certain areas, enabling the extra money to go towards your catalogues.

Guarantor loans

What is a guarantor loan?

A guarantor loan is when a person, usually a family member or a friend, agrees to pay off a loan if you’re unable to keep up with repayments. This type of loan is unsecured and acts as a ‘safety net’ for your lender.

What is a guarantor responsible for?

A guarantor is legally bound to adhere to the requirements of the contract which can include making repayments in the instance that the original person taking out the loan fails to keep up with the payments. If a guarantor refuses to adhere, the lender may choose to proceed with legal action.

Agreeing to be someone’s guarantor is a huge responsibility and a significant risk – they’re agreeing to repay the debt if you can’t.

I can’t repay a guarantor loan – what happens now?

It’s important to be aware of what happens when you fail to keep up with payments on a loan where somebody else has agreed to act as your ‘Guarantor’:

• The lender will ask your guarantor to catch up with your missed payments – or they might even take the payment directly from your guarantor’s bank account. They can do this by using a Continuous Payment Authority (CPA) which is usually set up when the loan is originally approved.
• If payments are still not made, the loan will ‘default’ and be dealt with using the normal debt collection process, which can involve the debt being passed to a collection agency, or court action being taken
• The default is recorded on the credit file of both the original borrower and their guarantor

Watch out for added charges

Be careful – missing payments and failing to respond to communications from your lender can result in extra charges being added to your balance.