Loans and HP

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Loans

A loan is borrowing money. You can get unsecured personal loans from a bank, building society, high street store or a lending company and you can pay it back over time, with a charge known as interest. You can only get a loan if you are 18 or over.

An unsecured personal loan is not like a mortgage, which is known as a secured loan because it uses your house as security if you don't make the repayments. Your home is not at risk with an unsecured personal loan.

You can usually borrow anything from £1,000 to £25,000, depending on where you get the loan from, and can repay it from between six months and ten years, depending on your arrangement.

If you are looking to borrow a smaller amount or only need to borrow it for a short period of time, it might be cheaper to look at getting an overdraft or a credit card (See Overdrafts and Debit, Credit and Store Cards pages).

If you are looking for a loan, make sure you shop around and compare how much interest you are expected to pay back (this is usually called the APR - Annual Percentage Rate). The lower, the better! It is also important that you check for other charges such as late payment fees or over-limit fees before you sign anything. To work out the true cost of the loan, multiply the monthly repayments by the number of months you will be repaying it.

NEVER use an official lender like a loan shark. You will be charged too much and they can get nasty if you struggle to repay. Always use a well-known and regulated lender like a bank or building society.

Make sure you have researched all your options and fully understand what you are agreeing to before you take out a loan. If you can't keep up the repayments, you might be black-listed, which means you might not be able to have a credit card or mortgage.

Pay Day Loans

Payday loans are high cost short-term loans (at times over 4000% APR) designed to tide people over until payday. Typically you have until your next payday to pay back your loan plus interest, although some payday lenders let you choose the repayment period and date.

On the repayment date, the lender takes the amount you have borrowed plus the interest charged directly from your bank account. You will need to make sure you have sufficient money in your account to pay essential bills like mortgage or rent, heating and food, otherwise you could end up going overdrawn and having to pay bank charges.

Only take out a payday loan if you are absolutely sure you can repay it on time and don’t be tempted to roll over the loan. If you are already in financial difficulty they are unlikely to help you in the long run. If you need more than a month to repay find a cheaper alternative and if you have a poor credit rating don’t assume you can’t borrow elsewhere.

Hire Purchase (HP)

Under a hire purchase (HP) agreement, you are technically hiring goods until you have paid the final installment and then it belongs to you. It is commonly used with cars
With a HP, you can end the agreement and return the goods at any time. This might not be the case if you have any overdue installments and have paid off less than half the total price, in which case you might have to pay the difference
If you fall behind with payments, the lender can repossess the goods
HP agreements are a good way to get hold of goods without paying the full amount for them, but research all the options open to you before agreeing to anything
Before signing a HP agreement, make sure you understand what your responsibilities are and that you can afford the payments

The Money Advice Service has an excellent section on debt managment including:

You can contact the Money Advice Service on 0300 500 5000 (or 0300 500 5555 for Welsh) Mon - Fri 8am-8pm, Sat 9am-1pm. There’s also an online chat function on their site.

You can contact Meic for free via online chat, text (84001) or phone (080880 23456).