Which Type of Loan is the Best?

There are many types of loans on the market and it can be very confusing knowing which is the best to choose. Some loans are specifically designed for certain types of lending, such as a mortgage for buying a home and a student loan for university fees. However, there are other sorts of loans which do not seem to be designed for a specific purpose.

When looking at getting a loan it is worth starting by looking at the amount that you want to borrow. You will find that you will need to know how much you want to borrow in order to choose the right loan. Some loans will offer too much and some not enough you see. It is always wise to borrow the smallest amount that you can. You will pay for the borrowing and the less you borrow the lower the cost of the borrowing. This means that you need to see if you have any savings that you can use as this will be cheaper than borrowing money. Also think about whether you really need to borrow the money as you could save a lot if you do not get a loan in the first place. It is wise to save up for items rather than borrow money and only use loans for an emergency – in most cases.

Once you know how much you need to borrow you can take a look at your options. Personal loans tend to be for larger sums of money, perhaps thousands of pounds. These might be used to purchase a car or an extension on your home. If you do not need that much money, then it can be wise to look for a different type of loan as you could end up borrowing a lot more than you actually need. A personal loan has a fixed term and fixed repayments. This means that you will have to pay back a certain amount each month. This could be better for some people as they will know what they are paying, although they are usually on a variable interest rate and you may need to pay back more or less should the base rate change. It is really important though to make sure that you have enough money to cover the repayments.

If you want less money then a credit card could be the answer. These will usually allow you to borrow hundreds of pounds, although this will depend on your credit rating and your salary. You may be able to borrow thousands on a card. You will need to make sure that you pay at least the minimum off each month though. Usually you have to pay back at least the interest each month on what you have borrowed. This has advantages in that it is flexible as you can choose to pay back the debt when you are ready. However, every month that money is not paid, you will be charged interest on it. The interest rates on credit cards tend to be high compared to personal loans, so if you think that it will be a long time before you pay back the debt it could be a very expensive way of borrowing.

An overdraft tends to be used in emergencies when you need extra money before you get paid. It will automatically be repaid as soon as money appears in the account. These have high charges and unauthorised overdrafts can be the most expensive type of debt there is. It is therefore wise to avoid using them if you have cheaper options available to you.

Some people, particularly those with poor credit ratings, tend to use payday loans to borrow money. These have to be paid back in full on payday and so you will only borrow small amounts of money. They are used to cover emergencies but if you cannot pay it back on time can be very costly. Therefore they are best used with caution.

So the best loan for you will depend on the purpose and amount that you need to borrow. It is wise to avoid borrowing if you can, but if you do want to borrow consider how much you want and which loan will allow you to borrow that amount. Then compare them to see whether you would rather use one that you pay back immediately, regularly or is more flexible. Consider the cost as well to see which will be cheaper for you.

Top Tips for Avoiding a Loan

Although loans do have their place and some people cannot manage to do things like go to university or buy a home without borrowing money, there are many loans which are unnecessary. When people borrow money for a holiday, to make ends meet, to pay for home repairs or for a wedding, they will end up paying a lot more due to the costs of the loan. There are ways that you can avoid having expensive and unnecessary loans.

To start with it is worth having a good idea of your current financial situation. Write down the money you have coming in and what you spend as well. It is wise to separate the spending into essential spending such as regular bills, rent or mortgage, tax, insurance, loan repayments, travel and food from the luxuries such as holidays, gifts, clothing, homewares etc. You will then know exactly where your money is coming from and what it is being spent on, which is very useful.

Often when we borrow money it is because we haven’t planned well for our future or that we want things which we cannot afford and do not want to wait for. If you keep an eye on your financial situation you will know where you stand financially which will be very helpful in planning. It is also wise to think about whether you really need everything that you are buying, including those items that you are borrowing money for. If you budget well, you could save up money each month and use that to buy the items that you need. It is always better to use savings rather than borrowing, if you have them because it is much cheaper. Loans are very expensive and you will end up paying a lot more for the items that you are buying, especially if you take a long time paying back the loan.

Sometimes it can be tempting to buy things because other people have them. It is natural to feel a bit envious and wish that you had those items as well. However, being like this will mean that you are always buying new things and you may not even be that happy with them once you have them. It can be worth selling some things that you have bought as this will not only generate some money, but it will also show you how little they are worth compared to what you paid for them. Hopefully this will make you think twice before buying things like this in the future.

It can be very effective to keep a note of what you would like to achieve financially. You may wish to pay off your debts, save up for a holiday, have a wealthy retirement or pay for your children to go to university. Whatever it is, then by keeping a note of it and reminding yourself regularly, particularly when you are tempted to spend money on things that you do not need and may even regret buying, you should find that you will be less likely to spend.

If there are particular places where you get tempted to spend too much, perhaps a particular shop or home, then try to avoid them. If it is a TV program that makes you want to go on holiday or ake changes to your home or wardrobe then do not watch it. If you cannot see what you are missing out on, then you will be less tempted to spend the money.

If you do still want to be able to buy a lot of things then it is wise to try to increase your income rather than getting a loan. See whether you can do some overtime, a second job, ask for a pay rise or find a better paid job. See if there are other ways to make extra money, such as selling things, starting a business, freelancing or renting out a room in your home. If you have more money coming in then you should not be so likely to need to borrow.

It is always worth calculating the cost of borrowing if you are tempted to get a loan. By adding up how much the loan will cost you in total or how much interest you will pay on a credit card each month. It should help you to realise why borrowing is not usually a good idea. You will be paying out a lot more money than the cost of the items and it may put you off buying them because they will be so expensive.

Is a Mortgage Cheaper than Rent?

There are many people that cannot decide whether it is better to rent rather than have a mortgage and there are a lot of factors to consider. The cost does tend to be the main consideration for most people and so it is worth looking at it in some detail.

If you compare how much someone pays for a mortgage on a property and how much the same property would cost for rent, you will normally find that the mortgage is cheaper. If you are renting social or community housing or living in a council house, then the rent could be cheaper than a mortgage. However, this cost is not the only cost that a home owner has and so you need to consider the extra costs that a mortgage holder has, compared to a person who is renting.

Although a renter may pay contents insurance if they wish to, a mortgage holder will not only have this choice but they will also need to have buildings insurance. The mortgage company will have part of their contract where they agree to take out an insurance which will cover the amount of money borrowed on the mortgage. This means if the home is somehow destroyed, the mortgage will be repaid using the insurance and so the lender will get their money back. The insurance company will also insist that whoever is paying the mortgage (whether that be a couple or individual) has life insurance that will repay everything owed on the mortgage should they die. It is also possible to take out insurance to cover mortgage repayments in the case of job loss, inability to work due to illness and redundancy. This type of insurance is not insisted upon, but the mortgage company will still expect you to make your repayments whatever your circumstances. Some people choose to pay for this security and some do not, it may depend on whether they can afford it, what their health is like and the security their job brings. Anyone with health problems will have to pay more for life and one that pays out in ill health insurance.

If anything goes wrong in the home, then the property owner will have to pay. If you are a mortgage owner, then this falls on you. Some repairs are more crucial than others and may decide to not worry about a broken kitchen cupboard but it would be wise to get a broken roof mended in case it causes even more damage through leaks. If you rent a property and have any problems with the building, then it is up to the landlord to pay for the repairs and they would be obliged to get them fixed pretty quickly as well. This means that if you rent, you will not have to pay for these jobs to be done, whereas if you have a mortgage you will have to find the money to pay for them yourself.

The costs of insurances and repairs will vary and it can be difficult to calculate whether they will add up to more than the additional cost of the rent. However, another factor needs to be considered and that is the increase in value of the property. Most of the time homes will increase in value. They may fluctuate a little in the short term but over time it will go up normally. Some houses will buck the trend, perhaps due to their location becoming undesirable but most will not. This means that someone with a mortgage will also gain through this. The rate that house prices rise does change depending on demand and interest rates but the increase in value over the time that a home is owned, could certainly outweigh the costs of the repairs on the property.

So the calculation can actually be pretty difficult. However, there are other factors as well as the price which may be considered as well. There is a security that comes from owning your home, that you know that as long as you pay your mortgage you will not be evicted, whereas if you rent you can be given notice to move if the landlords wants. However, if you tend to move around a lot with your work, then you may like the flexibility of renting, rather than having to buy and sell houses frequently.