A Guide To Common Loan Terms
For the uninitiated, the language applied to loans and mortgages can be
extremely confusing and potentially off-putting. Such terms are vital in the
process of obtaining a loan, and failure to understand them correctly might
hinder a person’s chances of getting a loan or result in them missing out on
potentially better deals. When the issue at stake is so crucial, it is
important that anyone seeking a loan or mortgage take a few minutes to make
sure they understand the process correctly. Below are a selection of terms
that need to be understood when applying.
Secured Personal Loan: Secured personal loans are designed for homeowners,
as the person seeking the loan can guarantee repayments using their house.
There is greater risk attached to such loans, as failure to repay the debt
could lead to the loss of the house, but securing the loan means better
rates of interest are available than if the loan were unsecured.
Collateral: When a person takes a secured loan, the object that they use to
guarantee the repayment is referred to as collateral. It is usually, as in
the above example, the property of the person seeking the loan.
Interest: This is the amount paid to the lender for his services, and gives
the lender their profit. The interest rate is the percentage of the loan
that is added as an additional payment. For example, if the interest rate on
a loan is 7% then an additional 7% must be added to the loan repayment as
interest.
Mortgage: Mortgages are types of loan whereby a property is used as
collateral against a loan which allows the purchase of the property. Any
such loan will carry with it a note setting the terms of the debt as well as
possible actions in the event of failure to repay.
Annual Percentage Rate (APR): Denoting the amount of interest that will be
charged on the balance of a credit card over the course of the year, annual
percentage rate is one of the least-understood terms when it comes to loans.
It is similar to interest in that the higher it is, the more you have to
pay. APR can change over the course of the year, however.
Equity: Equity is another phrase that is commonly used but often not
understood. It is the percentage of the value of a property in comparison to
what is still owed on the mortgage. For example, if a person’s house is
worth £300,000, and £180,000 of the mortgage has been repaid, then the
equity is 60%. Essentially, it is the amount of the property that is
actually owned by the homeowner. People who have paid off a large amount of
their mortgage will have a higher equity in their home.
Understanding terms used regularly throughout the process of obtaining a
loan is vital if one is to succeed in getting the most favourable terms. If
you’re looking for a loan or a mortgage, shop around for the best deal.
Check out Alliance and Leicester for a competitive range of
loans and mortgage
rates but also keep in mind that it’s also possible to find impressive
deals away from the more well established banks; Asda Finance for instance
offer good deals on both
unsecured loans and secured loans.
