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Make sure you know the difference between secured and unsecured lending - and don't put your home at risk unnecessarily.
Unsecured personal loan
An unsecured personal loan is available from a bank or building society without security. A lump sum will be loaned in return for which you agree to make regular repayments, usually by direct debit. Personal loans are available from £500 up to £25,000 and are repayable over a period of time, usually between 6 months and 10 years. Security will usually be required on loans of large amounts.
Interest will be charged on the sum borrowed, and this can be either fixed or variable. The charge is called an APR (annual percentage rate) which will vary depending on the amount of the loan and the period for repayment. The rate of interest is usually fixed and will remain the same throughout the period of the loan though it may be variable in the case of longer term loans. You must be advised of this possibility when you take out the loan.
Secured personal loan
The interest rates on secured personal loans are usually lower than on unsecured loans, but the lender will hold some of your property (home, stocks and shares, etc) as security against the amount you have borrowed. You risk losing your property if you fall behind with your repayments.
It is advisable to take out Payment Protection Insurance that will cover your loan repayments in the case of unemployment, accident, sickness or death. Your rights with regard to loans are covered by the terms of the Consumer Credit Act.
Current Accounts
A current account usually offers the facility of a chequebook and cashcard and does not require any notice to be given to withdraw funds. However, account features such as minimum balance requirements, minimum amount of transaction, whether a cash card is available, any limits to the number of withdrawals, availability of overdrafts, etc, will vary depending on which account and which bank you choose. It may be possible to operate your account via branch, post, telephone or the Internet.
Current Account and Offset Mortgages
A current account mortgage allows you to operate your mortgage borrowing through your current account. You will be required to pay your salary into the account but you are likely to save interest as your normal cash-flow will alter the outstanding debt.
An offset mortgage allows you to keep your balances - e.g. mortgage, savings, current account etc - in separate accounts but all balances are offset against each other. This allows the possibility of reducing the interest paid and could result in the mortgage being repaid early.
Overdrafts
Banks will often allow you to overdraw your current account. If you have arranged for an overdraft facility on your account you will be charged an authorised overdraft rate - the rate of interest that you will pay on your overdrawn balance if you remain within your authorised limit. If you have not arranged an overdraft facility or exceed your authorised limit you will be charged interest at the unauthorised overdraft rate. This rate will be much higher than the authorised rate. You may also be charged a fee for being overdrawn. Any fee levied will depend on whether the overdraft is authorised or unauthorised.
Some banks will allow a certain overdraft without charge, for example £100, but for higher amounts you will usually be charged for the facility.
Individual Savings Accounts (ISAs)
Individual Savings Accounts (ISAs) replaced PEPs (Personal Equity Plans) on 6th April 1999 and new PEPs ceased on that date. Existing PEPs (opened before 5 April 1999) can be switched to another PEP fund or transferred to a different fund manager's PEP, if desired. Any savings already sheltered in PEPs are allowed to remain, and enjoy tax breaks broadly similar to those offered under ISAs.
Unit trusts
A unit trust is a portfolio of investments that spread market risks allowing investors to reduce risk exposure by pooling their investment. When investing in a unit trust, cash buys units. Each unit trust has thousands of people holding units in the fund. A unit trust is an open-ended investment, as the number of units in each trust will vary depending on supply. As more investors join, more units are created.
Unit trusts cover a variety of funds. The funds are grouped together in sectors, covering general principles of style, area and risk level that the fund has chosen to invest in. These range from investing in a particular geographic area such as Europe or Japan, to more specialised categories such as technology. Funds can also be split into two categories in terms of the way that they are managed - actively managed or passively managed. In an actively managed fund the fund manager is responsible for the selection of the shares within the portfolio. A passive fund is more regulated, with the fund following the performance of a particular index (e.g. the FTSE 100). With all these different unit trusts the value of the units may fall and rise depending upon the performance of the fund. Increases are not guaranteed.
UK Orbit Finance page
For Credit Card information see UKorbit's Credit Card Guide
The Financial Ombudsman Service
provides consumers with a free, independent service for resolving disputes with financial firms.
The
Finance Industry
Standards Association provides a free guide to borrowing in PDF format: FISA Guide.
Under the Data Protection Act, you have the right to access your personal data from credit reference agencies. For £2 you can access your report from Equifax
Visit UKOrbit's Consumer & Advice Centre for further help and information.
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