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Loan products are quite simple, but there are some basic things you should understand before applying so that you know how to find the best loan, and you know exactly what will happen when you take out a loan. Loans consist of two parts: the capital amount borrowed, and the interest. The interest is the amount that the lender will charge you for allowing you to borrow money and repay it over a which is the total amount you will have to repay.

Capital amount + interest rate = total loan cost

Once you have been granted a loan, you will have to make monthly repayments for the duration of the loan term, until the total loan cost is repaid in full. Some lenders will allow payment breaks and holidays, but you should always keep in mind that the longer you take to repay a loan, the more interest you will repay overall.

You can get loans from a variety of places. The most common place to get loans is from banks or building societies. There are also many online financial institutions that offer loans, as well as the financial arms of many well-known UK brands, such as Tesco and Sainsbury’s. When looking for a loan, you can go directly to the lender, or you can apply through a loan broker. Loan brokers will be able to compare the entire market (as long as they are a whole-of-market broker, and aren’t tied to any particular financial institutions), so that you have a better chance of finding the most affordable product. There are also many independent online loan comparison sites that will help you find the best loan available for your budget and requirements.

Whether or not you will be accepted for a particular loan product will mostly depend on your credit record. Your credit record shows lenders whether you are likely to repay the loan or not. If you have a good credit record, your chances of being accepted are greater. However, if you have a record of missed debt repayments, CCJs or bankruptcy, your chances of being accepted are much lower. This is because the risk on the lender’s behalf will be too high.

When you are accepted for a loan, you will be offered the loan at a particular interest rate. This is called the annual percentage rating (APR). While loan products are advertised in regard to their ‘typical’ APR, there is no guarantee that you will actually be offered the loan at this typical rate. The typical APR is simply the rate the lender offers to 66% or more of applicants, while in reality the rate offered to you may be much higher than this. The rate you are offered is determined by your credit record, the amount of money you are borrowing, and the length of the loan term you are applying for. The better your credit rating, the lower APR you are likely to qualify for.

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