Loans: How much can I borrow
Right, you have decided that you need a loan. The next stage is to work out how much you need to borrow, but you also need to consider how much you can realistically afford to repay every month until the loan is fully paid off.
The amount of money that you can borrow will depend on several factors, your salary for one, what type of loan you are after (secured, unsecured, payday etc...), how long you want to take paying back the loan, the loans lender and your credit history are some of the main points that are considered. The reason for your loan is sometimes a factor, many companies offer all-purpose loans but some will only lend money for debt consolidation or home improvements.
Unsecured loans
If you are a tenant then you can rule out a secured loan, as these are only available if you are a homeowner. However you can get an unsecured loan or a payday loan. With an unsecured loan you can generally borrow from £1000 up to £25,000 but this can vary from lender to lender and will depend on your credit score on application. Repayment terms usually range from 1 year to 10 years.
Payday loans
Payday loans are a form of unsecured loan for those who are employed. They are for small short-term loans that help people bridge the gap in their finances until their next payday. They range from £80 to a maximum of £1000. Repayment terms are short, they have to be repaid by the following month. Because Payday loans are a form of emergency lending, the interest rate charges are much higher than any other type of loan, very similar in fact to a credit card.
Secured loans
Secured loans, also known as homeowner loans, are for people who own a property, either outright or have an existing mortgage on their home. Because you have an asset, the lender can offer a better deal on your borrowing. This includes offering larger loans depending on the value of your house, longer repayment terms and a lower interest rate than with an unsecured loan. Secured loans begin at £5000 usually and can go up to £250,000 but some specialist lenders will offer a higher amount than this.
Repaying the loan can be stretched over 5 years to 25 years on average and in some cases 30 years can now be arranged. This makes a large loan, which most secured loans are, more affordable on a monthly basis. Secured loans can be riskier for the borrower though, because if you stop repaying the loan, your home can be repossessed to cover the amount owed to the lender.
Adverse Credit Loans
People with adverse credit can still get loans too. Many lenders offer loans for those who have previous poor credit history such as CCJ's, defaults, bankruptcy and arrears. So if your credit history is less than perfect, you can still find a good loan deal. They do tend to have a slightly higher rate of interest than with other loans just because from the lenders point of view, the loan is riskier than with someone who has a better credit rating.
Many financial websites offering secured and unsecured loans now offer the use of their free loan calculator. Simply type in how much you want to borrow and over how long and they will work out your probable monthly repayments. This will help you work out how much you can afford to borrow.
Still, nothing beats a pen and paper, so let yourself sit down and write down all your monthly incomings and outgoings. Work out how much disposable income you have each month and make sure this will be enough to cover repayments and leave you with enough spending money, the last thing you want is to get a loan which actually creates more debt that it solves.