Unless you’re a Premier League footballer or you’ve won the lottery, the chances are that you’re unable to pay for your new home or car in one go – turning up at the dealership or estate agent and being able to pay the whole amount.
To us mere mortals, it’s often the case that we have to get some kind of loan to cover the costs, allowing us to move into a new home with our partners (or just get away from the parents), or to invest in a brand new car rather than the seventh-hand model you’ve been driving for years.
A home loan is effectively a secured loan, meaning that the property you’re trying to purchase is used as, essentially, collateral in the event that you cannot complete the repayments. Essentially, the lender becomes the owner of – in this case – the property until the payments have been made in full.
These kind of loans require the most paperwork of the various forms, and it’s easy to understand why really – the value of the property is much higher than anything else you’re likely to buy and as such you are lent a substantial sum of money and the essential checks need to be performed to ensure that you’re likely to be able to return the money.
The loans are normally of around fifteen to thirty years in duration, and the shorter the loan the cheaper the interest rate tends to be, making short term options the cheapest loans by far.
Aside from home loans, the next popular form is for cars and other vehicles. We all need them to get around – to work, to the shops, to take the kids to school, for social purposes – the list can go on and on, and it’s very difficult to save up the money to buy a brand new model without some kind of assistance. It’s often just as difficult to buy a used model with your own cash!
Loans on cars are usually fixed, letting you know that you will be paying back a certain figure each month, on a certain date, until the loan is repaid in full. This can be highly beneficial because you can budget for the months ahead, safe in the knowledge that your loan will be finally repaid on a specific date and the car is then yours.
They usually span one to five years in duration and can be offered by the dealership or you could go to a bank in advance and do it directly with them, whatever suits you, and the application can be done online making it much quicker and much simpler than applying for a home loan.
Content Image By Reshma Muralitharan via Flickr shared under CC BY-ND 2.0 license.
Featured Image by Brian Arechiga via Flickr shared under CC BY 2.0 license.