Online loans can save you a lot of time and money and give you fast access to our top lending companies on the market. There are a number of different loan products available but they generally fall into the category of secured loans and unsecured loans. People take out online loans for small and large sums of money and for a host of different reasons. It may be to buy your first new home, do home improvements, go on holiday, buy a car or to consolidate a number of outstanding debts on store and credit cards or loans.
If you're a homeowner you can apply for secured online loans. These loans are granted using your home as security or collateral and because the lender has your home as insurance against the loan they are taking less of a risk and will offer you lower interest rates. You are taking a greater risk because you're betting your home that you will repay the money you have borrowed. This means that if you should fall on hard times and are unable to pay back the loan you will be putting your home in danger of repossession.
A mortgage loan is also a secured loan because the lender has the property as insurance until it's paid off in full. There are two types of mortgage online loans: interest only and repayment mortgages. In the case of interest only mortgages, only the interest due on the amount borrowed is paid monthly so the capital does not diminish through the period of the mortgage. The borrower takes out an alternative repayment plan by investing in an ISA (independent savings account), an endowment policy or a pension. With a repayment mortgage a portion of the capital and interest is paid monthly so the borrowed amount decreases with each payment until, at the end of the term, the property is paid in full.
Unsecured online loans are offered at competitive rates from loan companies but interest rates are higher as a rule than for secured online loans. This is because the lender is not given any insurance or collateral to back up the loan. With a higher perceived risk comes higher interest rate. The granting of these loans and the exact interest rate you are offered depends on a number of different factors. These include your past credit record, your financial situation and your ability to pay back the money to the lender. Even though it appears that you are taking less of a risk with unsecured online loans, in practice, the lender can still take out proceedings against you if you default and don't pay back the loan.
The interest rate charged on online loans varies from one lender to another and is known as the Annual Percentage Rate or APR. The APR charged also changes depending on the method of application; applications by telephone can have a higher interest rate than for online applications. This is due to the fact that the lender saves money on overheads with online loans and passes this saving on to you. In order to compare the APRs from different companies it will be easier if you are familiar with the different ways in which interest rates are quoted.
A interest rate that is fixed means that the amount you pay each month will not change along with ups and downs in the bank base rate and you'll know exactly how much you will need to budget each month. A variable interest rate means that the amount you pay each month could change through the term of the loan, depending on fluctuations in the bank base rate.