Consumer Loans

It’s important for healthcare professionals to have an understanding of the different loans which are available – to help them take control of their personal finances. This forms part of a series covering essential topics including credit scores, credit cards, bank accounts, and savings. Like these other topics, talking about loans isn’t specific to healthcare professionals but to understand the financial implications of such products that are specific to healthcare professionals, it is important to understand these products at their simplest.

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What is a loan?

A loan is a method of borrowing money at an agreed interest rate for a fixed period of time with fixed repayments.

Types of Loans

Unsecured (Personal) Loans:

An unsecured or personal loan is based on your personal credit rating. The better your credit rating, the more you are able to borrow and for better terms.

  • You can borrow a maximum of £25,000
  • You can borrow for a maximum term of 10 years

The repayments are fixed and must be paid regardless of your personal financial situation.

The APR (Annual Percentage Rate) is the interest rate and the cost of borrowing for each year. 

Personal loans are available from High Street banks, building societies, and internet loan providers.

Secured Loans:

In order to obtain a secured loan, an asset or property must be secured against the loan in case of default. 

If one defaults or misses/fails to repay the loan, the property/asset the loan is secured against can be repossessed by the lender.

  • The maximum you can borrow is £100,000
  • The maximum term you can borrow for is 25 years.

Secured loans tend to have better interest rates as they are secured against an asset and so are lower risk for the lender. These loans are available from high street banks and building societies.

Debt Consolidation Loans:

This type of loan is utilised to bring all types of debt under one loan in order to simplify repayments and ideally attract a better interest rate.

For example, one may have debt on several credit cards which attract a 19-28% interest rate and an overdraft. It would be easier to consolidate these debts onto one loan with one repayment date rather than multiple dates at multiple rates. The loan would be used to pay off the credit cards and overdraft. 

It is important to remember that if you are taking out a loan to pay off other debt, that you specifically apply for a debt consolidation loan. This is because any other loan would add to your overall debt when a lender is looking at your credit score. If the loan is going to remove this debt, then you are more likely to secure a large enough loan to cover your debts.

Key Facts About Loans

AffordabilityMake sure you are able to make the repayments, even if there is an issue with income for a couple of months. Missing payments can significantly affect your credit score. 
APRThe Annual Percentage Rate (APR) is the cost of borrowing over one year. Compare loans to get the best (lowest) APR
Arrangement FeesSome lenders may charge an arrangement fee to set up the loan. Make sure you take this into account when assessing the overall cost of the loan. 
Early repayment penaltySome lenders may charge an early repayment penalty for paying off the loan too early as they lose out on the interest. This is also called a “redemption fee” 
Credit ScoresLoans significantly impact your credit score. Any missed/late payments can be very detrimental and seriously jeopardise your chances of being able to secure a reasonable loan in the future.

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