Long-Term Loans in the UK: 5 Things You Should Know

Alex Parsons Alex Parsons | Secured Loan Expert

Long-term loans in the UK are enjoying a surge in popularity as our economy expands and people get back to work. The loans are being used for a variety of purposes ranging from home renovations to paying down high-interest debt. Many of them are obtained as secured loans by leveraging the equity in a primary residence.

Any plans you might have to get a long-term loan should be tempered with a basic understanding of how the system works. Truth be known, long-term loans are not necessarily the right option in every financing situation. When they are right, they can prove very valuable over the long term. When they are not right, they can cost consumers more than they had planned on spending.

Concerning long-term loans in the UK, here are five things you need to know:

1. They Are Not Appropriate for Small Amounts

Your basic long-term loan offered as a secured loan product is intended for financing high-cost needs. This is why secured lending lets you borrow tens of thousands of pounds against your property. If your financing needs are small ?? say £5,000 or less ?? a long-term loan is probably not in your best interests. You would be better off looking for a short-term personal loan or using a credit card.

2. Representative Rates Are Just That

Lenders advertising long-term loans in the UK present consumers with what is known as the 'representative' interest rate. This means that the advertised rate is representative of what some borrowers will be offered. Here's what you need to know: lenders are only required to offer that rate to 51% of those whose applications they approve. The remaining 49% can, and often do, receive an offer with a higher rate.

3. Secured Loans Offer Structured Payments

One advantage of long-term loans obtained as secured financing is that they offer structured payments. This means the consumer ends up paying the same amount every month for the entire term of the loan. Structured payments make for easier budgeting as a result. This will be important to you if your financing needs will put your budget right on the edge. Should loan payments leave no room for emergencies, borrowing might not be the best thing for you.

4. Lock-In and Repayment Penalties Can Hurt

Long-term loans sometimes come with lock-in and early repayment penalties that could hurt your wallet should you decide not to take a loan to its full term. For example, you may pay a lock-in penalty on an older loan if you try to pay it off using a new loan. Early repayment penalties are similar in that they penalise you for paying your balance earlier than the loan calls for. Make sure you know and understand these charges before you agree to a long-term loan.

5. Your Credit Rating Matters

Finally, one of the advantages of long-term secured loans is that these can be obtained even with poor credit. But that does not mean your credit is not important. Your credit rating does matter when the lender determines your interest rate and repayment terms. The better your credit, the more favourable the offer will be.

There is intense competition right now among banks and building societies within the long-term consumer loan space. Long-term loans in the UK are as numerous as they have ever been, so keep an eye on Best Buy tables if you are getting ready to start comparing loans. You should be able to find a couple of very good deals to choose from if you take the time to look around.

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