Useful Terms commonly associated with Personal Loans

ASU and loan protection cover – whilst this isn’t a term particularly associated with the actual home loan it is a common insurance product to go hand in hand with the personal loan. It stands for Accident Sickness Unemployment. The explanation for the product is rather obvious in that it covers your home loan payments in the event that you should be unable to, due to a cause related from illness or unemployment. Premiums will be paid in order to provide this cover. It generally advised for those who want peace of mind in knowing their loan payments are protected if they should be unable to work and meet the payments necessary.

Early Redemption Charge – when a lender provides a personal loan they are looking for a return on the money they have lent to you, after all, they are a business providing a service which they expect to get paid for. So if you have a one hundred thousand pound loan over ten years at five percent interest per year they will effectively be paid (obviously this figure will be less in reality due to capital reductions) fifty thousand pounds for providing the home loan. If you pay off the loan early, the company have lost out and will not be paid so much. Therefore they will charge you for paying off your home loan early to make up for this. You should check the small print on your personal loans terms and conditions to see this or contact the lender. This can be quite a significant payment if you are unaware so it is best to be cautious and educated, reading small print all the time.

Term – this will be the period of time over which you pay off your personal loan. At the term end you will be expected to have paid off the debt in total. Terms can be increased in order to reduce the monthly payments, For example a two thousand pound personal loan over one year will be around one hundred and sixty seven pounds per month. However over two years it will be around eighty four pounds per month. It should always be kept in mind that if the number of years are increased, so too will the total amount of interest payable to the lender increase.

APR – this stands for annual percentage rate. You should always be able to see the annual percentage rate clearly on literature or advertising that a loan company provides. It must be stated so that consumers looking for a loan can compare the ‘cost of service’ with another. For example comparing the APR of ‘company A’ at ten percent, you know that for a loan of one thousand pounds you would pay one hundred pounds interest per year for that service. Shopping around when APR’s are clearly displayed, if you see ‘Company B’ then charges five percent you would know which one has the lower rate, with ‘company B’ charging just fifty pounds per year in interest.

The APR was introduced in nineteen seventy four as part of the Consumer credit act and was introduced primarily for this reason, so that consumers could see the true cost of their loan or line of credit / finance.

Application Form – obviously if you are applying for a loan service the company will want to know your details. This is so they can assess your ability to repay and of course, organise for the money to be paid back. By providing details on a form and submitting it to them (contact details and past credit history for example) they can have ready access to this information and process your proposed loan.

Credit Rating – we will talk more about this in a specialised article, however to briefly summarise it is a score compiled, based on your previous use and history with credit. Lenders like to see a good credit rating, this is preferable, so they know there is a good likelihood you will repay the loan of finance without any problems.

Secured Loan – one which has the security of a property put up to back the line of finance. Provides assurance for the lender.

Unsecured Loan –the opposite of above, no property is put up against the finance.

Variable Rate – this will be the rate of interest charged, which can move up or down (hence ‘variable’). The variable interest rate on loan can do this for various reasons, such as a change in the Bank of England Base Rate or increased costs the lender must absorb and so charges to loan or credit customers.