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When it gets to that time where you need to raise some money the first thing to do is establish how much money you need. The amount of money required for your particular project will then to some degree dictate a number of other factors. One of the main ones being how much can I afford to pay each month to the lender who provides me with the funds. Unfortunately, as we have all probably experienced before, loans come with interest to pay on top, so you will have to pay back the amount you needed over the loan term as well as the interest over the repayment period. Interest is stated in Annual Percentage Rates, which dictates the longer you borrow the money over for the same loan amount and the same interest rate the more you will pay. That being said there is no point in keeping the term very short and being unable to meet the larger repayments that entails as you will probably default on the loan and have to live with the credit issues that could cause for many years. Therefore ideally aim to strike a balance between a reasonable monthly payment and a term that does not mean a lot of interest on top.
The larger the amounts you need, the longer the term you are likely to have to plumb for. But even though you might want to keep your repayments tiny and take the interest on the chin the maximum loan term available to you is actually often down to the type of loan you take out, the lenders own criteria and also your age.
Personal unsecured loans range from about £500 to £10,000, whilst usually offering terms ranging from 2 to 5 years, although a few personal loan providers do offer 7 years on some loan amounts. Terms are often quoted in months too, so at a stretch if you can borrow enough for your project via a personal unsecured loan you could spread the payments over 84 months. To illustrate the payments through an example, a £10000 loan over 84 months at 12.9% APR would require monthly payments of £187.84 and a total paid back of £15778.56
Secured loans are structured differently in that the lender has a charge over your property as added security much like with your mortgage. Because of this amongst other factors they can be used to borrow from £3,000 to £100,000 and allow a wider payment term, starting at 5 years and going up to 25 years. As an example of how this could be used for a £10,000 loan, if you took a 15 year (or 180 months) term the payments come down to £128.29 each, but the total payable would rise to £23092.20
Mortgages are another well known and very established way to borrow larger sums, typically for house purchases or remortgaging your home to improve it etc. These also offer the lender security via a charge on your property giving more flexibility on amounts and terms. Lowest mortgage advances start at around £10,000 but can go up to millions of pounds. Terms here are the longest in the loan market with some mortgage providers tabling 35 year (420 months!) in certain scenarios. Opting for a 25 year term (300 months) on our £10,000 example gives monthly repayments of £112.94 with a total payback of £33882.
Now what we must bear in mind is we have used the same 12.9% rate in all 3 illustration and whilst the first two examples are likely to be fairly close in terms of rate mortgages tend to be lower, particularly at the moment with many being in the overall cost for comparison of between 4.9%APR.
We can see that amounts and terms are major ingredients when determining the longest term you can use from what is available in the market but the biggest impact on what you pay back is just as likely to be what interest rate you pay alongside the term and amount borrowed. For more information on long term loans available through our lending solutions or to try our online loan calculators .
Homeowner Secured Loans
Rates From 7.1% APRC
Representative Example £30,000 over 72 months @ £679.90 repayments. Total payable of £49,949. 20.1% APRC including £2,975 intermediary fee and a £995 lender fee. Loans secured on property.
First Choice are tied to certain loan providers.
Mortgages & Remortgages
Borrow £80,000 over 25 years
At 4.6% Variable, £461.95 for
300 months. Total Payable
£138,585. Total Cost Of
Credit £58,585 (incl £1360 fee).
Unsecured Personal Loans REPRESENTATIVE 49.9% APR (VARIABLE)
First Choice are tied to certain unsecured lenders.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Security is required on
Established In 1988. Company Registration Number 2316399. Authorised & Regulated By The Financial Conduct Authority (FCA). Firm Reference Number 302981. Mortgages & Homeowner Secured Loans Are Secured On Your Home
First Choice Finance is a trading style of First Choice Funding Limited of The Old Courtyard, 103 Buxton Road, High Lane, Stockport, Cheshire. SK6 8DX. Copyright protected 2014.