- Common questions about managing personal loans,
- Making repayments, repayment periods,
- Minimum and maximum payment periods,
- What happens if I die or lose my job?
- Debt collection agencies
Unsecured Personal Loan: How to Manage Them
If you have never borrowed money and have taken out an unsecured personal loan, there are many aspects to this kind of financial product that may be unfamiliar. This article will allow you to discover personal loans by looking at some of the most common questions that arise about managing them.
Covering the basics like monthly repayments and terms of a loan, Personal Loans Now will endeavour to make the information as easy to understand as possible. Hopefully, it will take away some of the mystery that surrounds financial borrowing. Additionally, having an understanding of how this kind of agreement works will allow you to protect yourself against bad practices. They have been all too common in the past.
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The Basics Of Making Payments
A personal loan agreement starts on the day that the borrower signs the contract and ends when the loan you fully repay the loan. Unless you have taken out a personal loan with an agreed payment holiday period at the start of the loan, the first payment will be due one month after the funds appear in your account. The lender takes the monthly payments from your nominated bank account.
Payments are made on the same day every month and a one-year term consists of 12 payments. If you took your loan agreement out on the 10th of the month, but your employer pays you on the 20th you can arrange for the loan payment date to coincide with your salary. In this instance, the first payment made would include a slightly larger sum to cover the first few extra days. For those who are self-employed, you would have to directly ask the loan lender on repayment. Before taking out a loan, consider your type of employment, and veer towards those lenders that offer self-employed loans for your safety.
Minimum And Maximum Personal Loan Payment Periods
You can take out personal loans over a specified period, usually between one year and seven years. Some lenders, however, will make exceptions and grant a loan for a longer term. Unsecured loans are approved without any collateral, but a secured loan can put your home at risk.
You can check money advice websites for more information about the minimum and maximum terms for unsecured personal loans.
Key points – Unsecured Personal loans are not secured against property or assets. The most you can borrow is typically £25,000, and ten years for the maximum term. Monthly payment amounts, interest rates and repayment levels are usually fixed up front. The rate you pay will depend on your circumstances – source GoCompare.com
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The loan agreement will show the two named parties to the agreement, i.e. the lender and your name (the borrower). The contract also shows the amount borrowed, the term of the loan (usually shown in months or the number of payments due) the type of loan, e.g. home improvement loans, and the Annual Percentage Rate of interest charged.
Also included in the agreement are the full terms and conditions of the loan. Read these very carefully. Amongst other important details, the terms will show what happens if you miss a payment, whether or not you can repay the loan early with no penalties and interest charges for any late payments.
What Happens To The Loan In The Event Of A Death?
If the personal loan is not a joint contract, the money still owed comes out of the estate of the deceased. A spouse is not automatically responsible for debts taken out before death.
However, if there is not enough money left behind to cover all debts and there is no insurance to cover the loan, the sums owed are paid off in a particular order with priority given to any mortgage held.
You can pay for the funeral costs before dealing with unsecured loans. Do not ignore debts, if you are unable to deal with the situation then ask a friend to write to the creditor on your behalf.
Contact the lender and explain that the estate of the deceased is being dealt with. Ask for an up to date statement of the outstanding balance. Professional creditors used to this situation will advise you of the normal procedure to take. Next, wait for the creditors to contact you again. The lender will advise you of a settlement figure and will freeze the interest from that date.
In the meantime, it is a good idea to contact the bank and advise them about the death. The bank will automatically stop any further payments going out of the account until the estate has been settled.
What Happens If The Lender Goes Bust
It is a complex situation when a lender goes bust. The loan will still have to be paid back. If the lender has been bought out by another loan company, the debt will pass to the new business. Or, if the lender has gone bankrupt and a team of receivers has been brought in to wind up the company, they will ask you to repay. You will owe the accountants dealing with the bankruptcy.
In some circumstances, receivers may sell on a loan to another company as part of a block sale of debt. If you do not hear from the company, do not imagine that the debt has been written off.
In spite of some urban myths, debts are very rarely written off. It is in your interests to establish how to pay off the sum that is outstanding. If you do not do this, a debt collection agency collects the outstanding payments when they are appointed and your credit score can be affected.
Rules on Debt Collection
There are clear rules from the Financial Conduct Authority about what a company or debt collection agency should not do when collecting a credit debt. These are from The Money Advice Service
- Enter a property uninvited
- Use unnecessarily complicated language.
- Chase you for payment if you are not liable.
- Mislead you about your debts or your rights.
- Produce documents that look like court documents when they are not.
- Contact you at an unreasonable hour and must take into account any request you make not to be contacted at particular times or in particular ways.
- Send demand letters addressed to ‘the occupier’. (Utility companies, those unregulated by the FCA, can send letters addressed to ‘the occupier’ if someone has moved.)
If a debt collector breaks FCA rules or harasses you, report them to your local Trading Standards. Alternatively, complain to the Financial Ombudsman Service
Second Chance Personal Loans Eligibility
What Happens If I Lose My Job? Losing your job whether through redundancy or for some other reason is a problem when you have taken out a personal loan.
Making monthly repayments is going to prove difficult when there is a reduced income, and there is no provision in benefits paid to cover this kind of debt. You can start to deal with this situation by listing all your debts and prioritise secured loans like the mortgage. Then, check whether you have any insurance in place to deal with the repayments. Most payment protection insurance runs for a set period, typically 12 or 24 months.
If you are unable to make the payments on a personal loan, contact the company. Ask whether it is possible to defer payments for a short period. Alternatively, ask whether the lender will allow you to make reduced payments while you are out of work. Personal Loans Now do offer loans for unemployed people, but consider whether you will be able to repay it.
Some lenders may agree to suspend the addition of interest and make no extra charges. However, at the end of the day, the loan will still have to be repaid. The worst case scenario is that the lender will take you to court. If this happens, it will affect your credit rating in the future. The court won’t send you to prison for non-payment of a personal loan.
What Happens If I Make A Late Payment?
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The terms of personal loans are very specific. It is why it is important to read the small print. Lenders may be entitled to demand full repayment of a loan if a payment is late. They will probably send this information to credit reference agencies thus affecting your credit score.
If the loan is with your usual bank, the lender may take funds from other accounts to cover the payment. Taking from other accounts, is perfectly legal as long they notify you in advance. Lenders may also transfer the agreement to a third party (debt collections agency) which will contact you for repayment.
The Information On The Application Form Was Incorrect
Supply the correct information, as required, when applying for a personal loan. Therefore, if it comes to light that you supplied false information when applying for a loan, lenders can prosecute you for fraud.
In 2011, credit reference agencies reported that 18 out of every 10,000 applications for borrowing were fraudulent. Tighter regulations reduced this kind of behaviour. However, it is essential to make sure that everything you have included in the application form is true. Similarly, be very careful when giving out details of your bank account as these could be used to perpetrate a fraud.
So, as you can see, fraud is rife in the UK. It is important to keep your personal details safe if you do not want to be subject to this kind of crime.
How Can I Be Sure That The Loan Agreement Is Fair?
Firstly, the best way to be assured that the loan agreement is fair and that you are getting the right deal is to spend some time researching how personal loans are approved and set up.
Secondly, a reputable lender will always ask searching questions about your eligibility and will only lend you money if it is affordable. Expect to answer questions about your current financial situation, other debts, your current income and outgoings and the length of time you have resided at your current address.
We designed these questions to ensure you discover personal loans and that you do not take on excessive borrowing that could create difficulties in the future. A fair agreement will allow overpayments or early repayment of a loan and the personal loan interest rate will be reasonable.
Ethical lenders will also turn down an application if they feel that it is not in your best interests to borrow at that time. They may redirect to money advice services which can give you help and information about managing money and paying off debts.
Did you Discover Personal Loans?
In this article, Personal Loans Now allows you to discover personal loans by covering your common questions about unsecured and secured personal loans, how to make repayments, what happens if you die or become unemployed and other aspects of repaying a personal loan. Read more of this guide to discover personal loans in more depth.