Borrowing and Credit Products in the UK – No Guarantor Loans
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Borrowing and Credit Products in the UK

Borrowing and Credit Products in the UK

borrowing products

Given the limited capacity to save in the UK, most people have to borrow money some time or the other. To meet this demand, insurers are constantly coming up with new deals and additional privileges. As not everyone would know about the range of borrowing products available, we explain them in clear and easy-to-understand language without any jargon. Be it for a home, car or further studies, there’s credit for your unique needs.


Basics of Borrowing

To start with, only individuals above the age of 18 can take out a loan. Selling credit to minors is illegal in the UK. On any type of loan, you pay interest and other fees. Both of these in combination reflect the cost of borrowing on an annual basis. It’s known as the Annual Percentage Rate (APR) and every deal features this percentage. Many people compare deals after considering the APR. Yet, this isn’t always a foolproof method. For APR might sometimes exclude default fees if you miss repayments. As for credit cards, it’s a standard estimate and your cost depends on how you use the card. APRs work best for comparing similar types of borrowing products over similar periods. You should look for the total amount payable (principal + interest + fees) and your affordability factoring a change in circumstances.


Range of Borrowing Products

The most common forms of borrowing are:

  • Personal Loans:
    As the name suggests, personal loans are a type of borrowing taken for an individual’s personal needs, for example for buying a home or car, to pay university fees, to finance their wedding, to set up a business or even to make improvements to their home. It’s a fixed amount taken over a time period and at a certain rate of interest. You can repay personal loans in monthly instalments. It is touted as one of the cheapest forms of credit but it has a minimum borrowing amount and length of time in which the money has to be paid back. It’s good to check whether the cost if you’re new to credit or have a not-so-satisfactory credit score.


  • Overdrafts:
    When you withdraw more money from your bank account than you have, it’s an overdraft. It basically means overdrawing on your account. Generally, use it only as a borrowing for fulfilling short-term cash needs until your next payday. Some banks offer zero-interest overdrafts but may withdraw it at a short notice. So, keep debt low. Remember that if you overdraw without the bank’s permission or exceed your credit limit, you may come in for high charges.


  • Credit Cards:
    Credit cards are different from debit cards in that you’re essentially borrowing money and not using your own. With these cards in your wallet, you can shop as you please, transfer balances from another card or withdraw cash though this can be expensive. At the end of the month, you’ll receive a statement of your credit transactions. You can then choose to repay in full or make the minimum payment on the credit card. Balance not cleared in full accrues interest thereon so pay off as much as you can. Also, you’ll have a credit limit which is an amount you should try to keep within.

borrowing products

  • Credit Unions:
    These are cooperatives that provide loans to a specific community. Members pool money and lend to one another. From this, it’s clear that a credit union works for the benefit of its members. Interest rates may go upto a maximum of 42.6% APR (3% per month). In Northern Ireland, there’s a cap and interest can rise only upto 12.9% APR (1% per month). All credit unions usually offer savings and borrowing accounts while larger ones might offer additional products and services.


  • Payday Loans:
    Payday loans are meant to tide you over till the next payday. This type of borrowing provides for the scenario that your money is getting over and an emergency expense crops up. Earlier, people used to pay it off on their next payday but nowadays, it runs for a longer period and is repayable in instalments. Suitable for some people, it’s best to shop around and then borrow.


Good Debt & Bad Debt

There are two forms of credit- good debt and bad debt. This classification is according to a school of thought. Any borrowing that enables you to own an asset like a house or improve your chances of earning money like student loans is good debt. But, this is only if you can comfortably afford the credit and aren’t short on money for your family’s needs. Credit that gives no tangible benefits or isn’t worthwhile like loans for an expensive trip or to fund unnecessary luxury items is bad for your pocket. It’s also likely you’ll struggle to repay this so avoid it always.

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