From homes to phones, from cars
to caravans: if you can buy it, you can get a line of credit for it. But with household debt reaching staggering new levels
(£15,385 per household), it’s never been more important to understand what
you’re getting yourself into when you enter into a financing arrangement.
In this beginner’s guide to
financing options, you will further understand
how some of the most common types of loan work.
Homeowner loans give you access
to larger sums of up to £100,000 allowing you to borrow money against a
valuable asset: your home. They typically tie borrowers into a long-term
arrangement with their creditors. Of course, this means there’s long-term pressure
to keep up repayments; if you miss one, you could lose it.
Homeowner loans offer one way
of paying down existing debt but you will typically end up paying out a lot
more money over the course of a twenty five year term.
Most large banks and industry
lending companies offer personal loans. If you’re looking to spend upwards of
£2000, then you should consider picking up a personal loan, which you can
expect to pay back over a period of one to seven years. Personal loans are particularly common in the purchase and leasing of vehicles, with around 90% of
new cars being financed in this way in the UK last year.
With interest rates plummeting
over the past five years, personal loans have become an attractive way of
transacting bigger purchases. Credit history can be one barrier to entry:
you’ll need an impeccable record in order to get access to the most attractive
headline interest rates. Luckily, there are often specialist companies out
there such as caravan financer Auto
Finance Online, willing to offer unsecured
loans to people with a range of credit ratings.
A credit card is one of the
most common types of loan, whereby money spent is borrowed from a card provider
rather than being debited from a personal bank account. Lenders set monthly
borrowing limits and charge interest on purchases, although there are some
credit cards that enable you to essentially borrow money for free.
Using a credit card to pay for
something upfront can sometimes end up being less expensive than securing
financing agreements with sellers and third-parties over a number of months. As
a general rule, credit cards are generally a competitive way of making your
money work for you provided you’re going to be spending less than £2000 on a
purchase. It’s also one possible way of consolidating existing credit card
debts. Totally Money has a useful tool that allows you to find out which cards you’re eligible for without damaging your credit record.
How do I pick the right financing option
For purchases of less than
£2000, use a credit card. If you’re spending more than that, you’ll likely look
to the banks for a personal loan. When it comes to financing purchases, you’ll
sometimes find sellers offering you their own terms (although these are often
less competitive than a specialist financing company in the same sector).
try to buff up your credit record ahead of going in for loans. If you can
consolidate your debts, avoid taking on any new credit arrangements and ensure
you make all your payments on time for a couple of months, you could see a