Borrowing money is not something to enter into lightly, so it’s important to ask plenty of loan questions specific to the type of credit you want to obtain before signing on the dotted line. We’ve taken the most common student loan, home loan, car loan and tenant loan questions out there and answered them in this handy guide.
1.Do I need to shop around for a student loan?
If you live in the UK, the answer is NO. All student loans are paid via the Student Loan Company. You can apply for a student loan up to 9 months after your course has started, but it’s preferable to get this sorted before you get there!
2.When do I have to start paying installments?
This is an important student loan question to ask. You only need to start paying once you have finished university and you’re earning a certain amount per year. Simply put, you’ll repay 9% of anything earned above £21,000 per year. This will automatically come out of your pay like tax.
3.Is the loan paid directly to me or to my university?
This student loan question is relevant in the US, but in the UK the answer is simple: the tuition fee part of the loan goes straight to your university and the living costs/any grants are paid to you.
4.Can my loan be written off?
YES, it can! After 30 years, any remaining loan balance is wiped. This is also the case if you become disabled and unable to work, or if you die during the loan term.
1.What is a secured loan?
When you own our home, a secured loan can get you the best rates and borrowing amount. A secured loan uses your home as security. If you don’t pay the loan back, in extreme circumstances you could have your home repossessed.
2.How quickly can I obtain the money?
One of the most common home (improvement) loan questions; this depends on the lender, but can take around 3-4 weeks. Your home may need to be valued as part of the process.
3.What can I spend the loan on?
As long as it’s not illegal or spent on your own business (a business loan would be needed for this), you can technically spend it on whatever you want. Due to the higher amounts available, most spend their loan on home improvements.
4.How much can I borrow?
It depends on the lender. The minimum amount can be around £7,500 and, depending on how much you need and how much your home is worth, the maximum can go up to £200,000 or more. Obviously you’ll have to pay this back, so loans of this amount are rare!
1.Do I need supporting documents?
You will need proof of address and proof of ID as a minimum requirement. Some car loan lenders may require proof of employment, bank statements and other information to ensure you can afford your loan.
2.Do I have to buy a car from a licenced dealer?
This is a common car loan question. Some lenders will only work with certain dealerships, so it’s important to check this before you set your heart on a certain vehicle. Car loan questions like this should be asked at the very beginning so you know where you stand.
3.What will my monthly payments be?
Your monthly payments should be clearly set out to you before you sign anything. It’s important that you make sure this is affordable for you and that you’re fully informed before you agree to anything.
4.Is a down-payment required?
Depending on the type of car finance plan you choose, a down payment is usually required. This may be a certain percentage of the whole value of the vehicle or it may be a set amount no matter which vehicle you ultimately choose.
1.What kind of loan should I get?
When you’re a tenant (i.e. not a homeowner) an unsecured loan is often required when credit is needed. Alternatively, if you have a car or valuables, you may be able to get a secured loan with these assets.
2.How much can I borrow?
Lenders offer a variety of loan amounts, but the amount you can get depends mostly upon your circumstances and your credit rating. Unsecured loans can provide anything from £1,000 to £25,000.
3.How will my credit rating affect my loan?
Your credit rating shows lenders how ‘safe’ you are to lend to. You must demonstrate you can be financially responsible with borrowed money for your credit rating to improve. If you have a low credit rating, you may need to borrow from an alternative lender (such as a guarantor lender), or you may be offered a lesser amount at a higher rate.
4.What happens if I can’t pay my installments?
If you can’t pay your installments, your credit rating will be negatively affected and the lender may pursue action against you to recoup the costs. Letting the lender know ASAP if you can’t pay is important.
1.What kind of loan can I get from my bank?
Banks usually offer both secured and unsecured loans, credit cards and mortgages. Short-term loans, guarantor loans and pawnbroker loans are usually not available from a high street bank. Ask your bank any loan questions you have to see what they can offer you.
2.Do I have to stick with the bank I use for my current account?
This is a common bank loan question. You may get favourable rates or extras if your current account is with the same bank you get your loan from, but it’s not essential. You’re free to borrow from any lender.
3.What if I am turned down by my bank?
Banks are now more risk averse than they were pre-2008, so if your credit history is not up to their preferred level or you have never borrowed before, you may need to look elsewhere for credit. Guarantor lenders may be able to help, as they are designed for those with a less-than-perfect credit history. You’ll need a guarantor to vouch for you and to agree to pay any installments you miss.
4.How quickly can I get the money?
If you bank with the lender you’re applying with, they may well credit your current account instantly. Each bank loan lender is different – check before signing on the dotted line.