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Long Term Loans Explained What is a Long Term Loan?
Whatever your situation is, whether you planned for eventualities or not, we can all fall on hard times. If you've been considering a long term loan but still aren't sure that if it's right for you, then this page will be able to give you all the information you need to decide if a long term loan could be the solution to your problems.
What is a Long Term Loan?
A long term loan is a form of credit where the debt is paid off over an extended period lasting normally over 2 years. Once you have signed your loan agreement and received your credit, you will then pay back your credit and any interest you have earnt, over your prearranged loan term period.
As their names suggest, long term loan's term period can vary from anything from 1 to 10 years, so you don't have to worry about coming up with the money straight away. Some long term loans can even last up to 15-20 years, but generally, most are paid back within a timeframe of ten years and under.
So, whatever you need the credit for, however rapidly or gradually you intend to pay the loan back, you can arrange a time frame around what suits your needs.
Different lenders all have different criteria to decide whether or not you are eligible for them to lend you money. However, commonly the essential criteria lenders look for in a customer is good credit and a reliable source of income.
What is the alternative?
As well as their appeal, long term loans are also a lot more convenient than their alternatives such as payday and short term loans. Although payday and short term loans do serve a purpose for some, they are not as good in the long term as namesake long term loans are.
Firstly, payday loans are usually paid back within a month on your next payday and allow you to borrow a small loan which would amount to no more than your monthly salary. Although this might help you until payday, it can be of little help to you if you need to borrow an amount of money which is more than your monthly salary.
Secondly, although short term loans have more extended borrowing periods than payday loans, you still must pay back the loan typically within a year, which can be tricky if you wish you borrow a sustainable amount of money as you could struggle to pay it back within that timeframe.
Situations Where Long Term Loans Can Help What are Long Term Loans used for?
You can't always account for the unaccountable. Sometimes life throws something your way and you don't always know how to deal with it. If something has cropped up and you've found yourself without a surplus of funds to help cover the costs, then you might be wondering if a long term loan could help.
What can you use one for?
Long-term loans are ideal for customers who are looking for a quick and easy solution for their financial troubles, who will be able to manage repayments by staggering them over a long-term period.
The versatility of long-term loans makes them an excellent choice for many customers, as long-term loans can be used for a variety of different reasons, from weddings, home redecorating, holidays, repairs or to even launching your own business. Whatever you need the money for you can get a long-term loan to cover the costs.
Could you get a Long Term Loan? Could I be Eligible?
Before you consider any form of finance, it's important that you know realistically, whether or not your suitable and if you'll be likely to be accepted for that type of credit. The following section will tell you everything you need to know about the eligibility criteria of long term loans, so you'll know if you're eligible or not.
Am I eligible?
In order to be eligible for a long-term loan, most loan companies will expect you to have an excellent credit rating and be in secure employment; this is to ensure that you will be able to make the repayments on the loan.
As well as this, you'll usually have to be older than 21 years of age, possess a bank or building society account in your name and have been a UK resident for at least 3 or more years.
Although it is worth mentioning, that different lenders have different criteria to decide whether or not you are eligible for them to lend you money. However, commonly the essential criteria lenders look for in a customer is proper credit and a reliable source of income.
What about if I have Bad Credit?
If you do not have a good credit history, there’s no need to panic that you will not be able to find a lender willing to offer you a long-term loan. If you have had missed loan or bill payments, been issued a CCJ or had to file for bankruptcy in the past, it could make finding a lender to give you a loan a lot harder, but there are still ways you can make the process a little easier.
Tips for applying with have Bad Credit
Be sure to choose your lender carefully. As unfortunately, if you are applying for a long-term loan with bad credit, you will find that many lenders are not willing to give you a loan unless you have proper credit. So, it is important to be understanding of the fact that you may only have a handful of lenders to choose from, so make sure to do your research into the company! Make sure that before you apply, they will be likely to accept your application, as failed loan applications show up on your credit file.
Don’t apply for multiple loans at the same time! This could make you appear desperate and untrustworthy when lenders look into your credit file, and this can be a massive red flag to potential lenders.
What about if I have Bad Credit?
If you do not have a good credit history, there's no need to panic that you will not be able to find a lender willing to offer you a long term loan. If you have had missed loan or bill payments, been issued a CCJ or had to file for bankruptcy in the past, it could make finding a lender to give you a loan a lot harder, but there are still ways you can make the process a little easier.
A long term loan calculation tool is helpful when looking at what sort of repayments you will be able to afford; these will usually be on lenders websites. If a company doesn't have a loan calculator tool, you can also use the APR that’s advertised on lenders websites to work out the cost.
Tips for apply with Bad Credit
- Be sure to choose your lender carefully. As unfortunately, if you are applying for a long term loan with bad credit, you will find that many lenders are not willing to give you a loan unless you have proper credit. So, it is important to be understanding of the fact that you may only have a handful of lenders to choose from, so make sure to do your research into the company! Make sure that before you apply, they will be likely to accept your application, as failed loan applications show up on your credit file.
- Make sure to time your long term loan correctly. If you're not in a comfortable enough position to do so now, be sure to wait until the time is right to ensure you're getting the best deal possible. In the meantime, make sure to improve your financial position. However, if you still need credit urgently, your options are to try either a short-term loan or a bad credit history credit card. Providing that you make all your repayments in full and on time, you'll be able to give your credit a well-needed boost, increasing your likelihood of getting a long term loan in the future. Show More »
- Try considering security for your loan. Lenders always want to be sure that if they lend the money, that they will be sure to get it back. Moreover, the worry with customers with bad credit is that they will not get the money back, which is why they find lending credit to bad credit customers quite risky. However, if you are in a position to own assets, then you could use them as security for your loan. By using your assets (such as your home or your car), you could put lenders worries at rest, as they know they could recover the costs of the credit if you could not keep up with the repayments.
- Invest time and effort into improving your credit score. Although your credit score may be low now, it will not stay that way forever if you continue to do things in an effort to improve it. So, consider having a look at these expert tips on how to improve your rating.
Tips for Boosting your Credit Score
- Check your credit file online, as it is essential that you be aware of any outstanding debts you may still have. It is also important to look out for any information that might be missing or incorrect on your file. As false or inaccurate information could further hinder your score.
- Reduce the amount of debt you owe while you can. Make sure you keep up with payments, ensuring that they are paid in full, on time and regularly. If potential lenders are worried that you will not pay your debts, show them that you can.
- Use your credit card responsibly. Try to opt to use it more as a debit card than a credit card, try not to max out the limits and instead keep the credit utilisation balance on your card low. Moreover, ensure when paying your bills on your card you pay in full and on time.
- Check to make sure that you are on the electoral roll.
- Get rid of unwanted credit cards and phone contracts, which you may not be currently using.
- If you have no credit at all, make sure you take out a credit card and repay it in full each month. As having no credit at all can be as bad as having a bad credit rating.
- Lastly, if you are struggling to pay your bills in full and on time, make sure you get in contact with your creditors, or alternatively get in touch with a credit counsellor who will be able to help you come up with a repayment schedule to make your payments more manageable. « Show Less
What long term loan lenders can do for you What can I expect from lenders?
In this section, you'll find out exactly how much you'll be allowed to borrow, what you should look for in a lender, how to get the best deal, and much more. This way you'll know exactly what to expect before you've even begun the application process.
How much can I borrow?
Long term loan amounts can vary from lender to lender and are mainly dependent upon circumstances, assets and whether the loan is secured or not; but you can expect to borrow anything from around £1,000 - £50,000 for anything that you may need the credit to cover.
What should I look for in a Lender?
If you are in the process of looking for a long term loan, you want to make sure you have got a lender whom you can trust and whom you know will look after your best interests. So here's some essential information on what you should look for in your search for a potential lender. Show More »
If you are considering applying for credit, then it is necessary to keep in mind if you can afford it. If a lender offers you a great deal on a loan, but you still cannot afford it, then there's no benefit to be had from accepting it; as you will only find yourself in worse financial circumstances than you were before you applied for the loan. Make sure you're realistically looking at how much you can afford to borrow and pay back, it is also important to take into account other household bills and personal expenses that can affect your affordability. Also, consider if your circumstances are likely to change within the term of the loan.
Make sure you look at the reviews, as rates are not the only things that can indicate a highly regarded lender. It is essential to make sure that you look at the reviews of any companies you are considering getting credit with and make sure to use trustworthy websites such as Trust Pilot and Google, as opposed to looking at the reviews that they provide on their site.
Online Safety and Security
You will need to ensure a lender is legitimate before you apply, as you will be handing over sensitive data. Therefore, it's crucial that not only do you make sure that you check reviews but also that you check that the company and it is products are regulated by the FCA (Financial Conduct Authority). That way if anything goes wrong between you and the lender that can't be resolved, you will be able to ask the financial ombudsman to mediate the dispute.
The financial ombudsman deals with any complaints between consumers and companies providing financial services that are regulated by FCA. This means that in the events of a dispute that arises between you and your loan company, you will be offered help and advice, and the ombudsman will mediate the dispute, all for free.
You should be able to find out if a lender is FCA regulated by checking their website or by looking at the free FCA register.
Could you benefit from a Specialised Lender?
Many companies who offer long term loans specialise in particular areas, such as poor credit and unsecured loans. Therefore it could be worth looking into specialist lenders if your circumstances or needs warrant a more specific approach; that way you will be sure to find a lender who will be willing to offer you a loan to suit your needs. « Show Less
How do I get the best deal?
When applying for any loan, you always want to check that you are getting the best deal possible. So before applying for a long term loan, you should always make sure you take the right steps before doing so, to ensure you get the best deal. Show More »
Compare your Options
There are plenty of loan brokers and price comparison websites that are available to help you to compare deals, although for some loan companies you still may have to go direct. When looking at deals make sure you take all the terms, fees and rates into consideration, as choosing the wrong agreement could make your financial situation worse as opposed to better.
Don't make multiple applications in a short space of time
When searching for loans, be aware of the fact that if you make multiple applications to multiple loan companies, then it will show up on your credit file and for many potential lenders this can be a red flag as you can appear desperate and untrustworthy.
Try for an Unsecured Loan
Although there are benefits to a secured loan, it may be a safer option to opt for an unsecured loan if you have the choice, especially if you do not want to risk losing your assets or you do not have any. « Show Less
How do I apply?
Once you have found the right loan that you think would suit you, your next step would be to apply and begin the application process.
Be selective; don't choose whoever offers you the best deal, make sure you do your research because in most cases if a company offer you a deal that seems to be too good to be true, then it usually is. If you follow our top tips then you should be able to find yourself the best deal with a credible company.
The easiest way you can apply is through the lender's website online, where you will be asked to fill out an online form, which is usually to identify the person who is making the application. Once the applicant has submitted their application form, one of the following things will happen;
You will instantly receive a decision, or you will be asked to provide additional information to support your application.
If you are not offered an instant online decision, you must provide the information they have asked for and the lender should come back and inform you with their choice through means of an email, post or via telephone.
What information will I need to provide when I apply?
- Date of Birth
- Proof of address
- Residential status
- Employment status
- Annual income
- How often you're paid
- How much you wish to borrow
- What the purpose of the loan is for
- How long you wish to spead out the repayments
How can I tell if a Lender is genuine or not?
One of the biggest worries when looking for a loan is how can to tell if a lender is genuine or not. Although it is a real concern for borrowers, it is relatively easy to find out whether a company is reputable or not.
- Firstly, the first step is always to make sure you do your research into any company you are thinking of applying to.
- When researching any loan companies, you should be able to find reviews of the company and its services online through reliable sources such as Trust Pilot and Google. Look at their overall score/rating and the types of comments they are getting. You can usually allow for a few bad reviews even with a good company. However, if all their reviews or a large number are negative, it would be a safe assumption to say that you should steer clear of this company.
- You should also check that they have a UK registered company address and telephone number, and if they do not continue your search for a loan elsewhere.
Look at the way they interact with any negative reviewers. If they blame customers, argue or ignore them altogether, then you should be wary. Even good companies may have a few negative reviews but will always seek to resolve any disputes with unhappy customers.
Here's all the terms you'll need to know Understanding Terms and Jargon
When looking for a long term loan, you may come across some industry-based jargon that you may struggle to understand. If you want to secure yourself the best loan you possibly can, then it is vital for you to understand the following terminology.
APR and Interest Rates
The APR or the 'annual percentage rate' aims to show you an example of how much you will be paying annually. This is expressed a percentage, once all the charges, fees and interest rates have been applied. Companies are legally obliged to show their APR rates on their loans so that you as a potential customer can make comparisons with other loans that their competitors are offering. So, if you find a loan with a low APR, then it is probably a cheap long term loan.
Acceptance rates are the overall number of people, as a percentage who have had their application approved, regardless of the APR charges. Show More »
Some companies may use the term adverse credit when referring to people who have a less than perfect record of paying off their credit commitments.
You may see this term along with adverse credit; a CCJ stands for a county court judgement. CCJ's are court orders which are issued when someone has repeatedly failed to repay their debts. This is a way of creditors getting back the money that they are entitled to. The court decides whether there is a debt to repay and if they decide there is, then they will arrange a repayment schedule.
The 'Cooling-off' Period
Something else that is also quite handy to know about is the 'cooling off period', as when you agree to the terms and conditions of a loan, companies may tell you that there's a 14-day cooling off period. What this means is, after signing the agreement on the loan, you have 14 days thereafter to cancel if you've had any second thoughts. This is vital to remember, as if you have a bad feeling about any repayments or see something in the terms and conditions you are not sure about, you have the right to cancel the loan during the cooling off period.
Some people will use a long term loan to cover the costs of a debt consolidation if they have had a lot of small debts with a few different creditors. This is when someone takes out one large loan to pay off a few of their smaller debts. This can be useful as it makes paying back the debt cheaper and makes managing the debt more manageable.
Early Redeption Charges
If you can afford to pay back your loan faster than you expected, you could be made to pay an early redemption charge. This is a charge that is added to your debt to cover the costs of the interest that you would have paid on the loan, had you paid it back in the time it was scheduled. Usually, the longer you have left on the loan, the higher the early redemption charge will be. You will often agree to pay an ERC in your terms and conditions when you take out the credit, so be aware if you are considering overpaying or repaying your loan in full sooner than expected.
Payment Protection Insurance
Also commonly referred to as PPI, is optional insurance that can be added to your loan as security against ill health, accidents and redundancy in the event that you would not be able to repay your debt. PPI is not compulsory, and companies are not allowed to sell you PPI if you do not want or require it. PPI has been given a poor reputation in recent years due to it being missold, but if you are taking out a sizeable long term loan and want security for the future, then PPI could be an option you might want to consider.
If you hear the term regulated before a product, it means that it is a product that is regulated by the FCA, Financial Conduct Authority or the PRA, Prudential Regulation Authority. For instance, a long term loan is classed as a regulated product, which means under the FCA and PRA's regulations, the firms who provide long term loans must adhere to a code of conduct and ensure their products meet the criteria set out by the regulator.
Moreover, in the event of any complaints which cannot be settled directly by the lender, the individual can refer to the financial ombudsman service for free mediation and advice regarding the dispute.
Secured and Unsecured
You may also have the choice of whether you would prefer a secured or unsecured long term loan, depending on your assets and how much you would like to borrow. As if you do have assets that you could acquire your loan against, then you should be able to borrow a more considerable sum of money. However, if you do not have assets or would prefer not to use your valuables to secure your loan, you may have to settle for a slightly lower amount. « Show Less
Before applying Next Steps to Take
Now you understand all about long term loans; you should be able to make an informed decision on whether or not a long term loan would benefit you and your circumstances. If you think that a long term loan would be the correct option for you, then you're probably wondering what steps you should take next.
The Pros and Cons
Before applying, you must consider the pros and cons of long term loans, which will help you weigh up whether or not you consider a long term loan to be worth it. Therefore it is important to make sure you consider the following before applying. Show More »
- It can be a quick fix if you are in need of cash today and know that you will be able to afford to pay off your loan and the interest in the future; then a long term loan is a perfect solution to you.
- You can get a quick decision, as once you have applied for a long term loan, you will usually hear back from the lender within 24 hours, with some even replying with a decision in minutes. So, you will not have to spend days worrying about if you have been accepted or not.
- The choice and freedom of long term loans can help within many circumstances, and you do not have to use a credit for just one reason either, you can use it for as many things as you need.
- You do not need heaps of documentation to apply. Typically, you can apply to your financial and work situation as well as your credit history, and most lenders will be able to make an informed decision on the information you provided. However, some lenders may ask for additional information to support your application.
- You might get high-interest rates if you are a potential applicant with bad credit / a low credit score. Because of this, you should always check the interest rates on your loan, as some lenders could make you pay extremely high prices. As well as this you could only receive only a portion of the amount that you need because of your bad credit, so always pay attention to the rates lenders offer you, as it may not be the best deal.
- Always read the terms and conditions for information about charges. Although it is tedious as they can tend to be somewhat lengthy, it could save you from any unwanted surprises, such as early redemption charges. If you are aware of additional costs or fees that could be applied, you can opt out in the cooling off period, or you will know how to avoid the charges in the future.
- If you cannot keep up with the repayments, then your creditor can take you to court to reclaim their money back, which will usually be done by seizing your assets. So to avoid this, it is recommended that you only borrow an amount that you can afford to pay back at an affordable rate.
- If you are applying for a long term loan with bad credit, you need to be aware that you are likely to be declined from a number of different lenders, so make sure you are aware of your credit score before applying for a long term loan. There are some reputable websites such as ClearScore and Equifax that you can use to check your credit score online. As well as this, it is important to remember that each application for a loan that you have rejected will show up on your credit score and could warn off other potential lenders. « Show Less
Important Things to remember
- Remember to keep in mind the following information that you've learnt from this guide:
- Always compare deals to ensure you get the best deal, use price comparison websites, loan brokers and APR - but do remember that not all deals are available on price comparison websites so you may have to go direct with some lenders to see if they have a better deal.
- Do your research on the company - make sure they are FCA regulated, that they have got a majority of good reviews and that they strive to resolve any complaints. It is also essential to make sure that they have a UK registered company address and telephone number.
- Always read the fine print, make sure you are aware of any additional fees and changes, as it will be helpful to know how to avoid them in the future or opt out of the loan.
- You have a 14-day cooling off period once you have agreed to the loan, to opt out at any time during that period if you are having second thoughts.
- Be aware that multiple rejections for credit will show up on your credit file and can, therefore, hinder your chances of getting a loan. So, make sure you do your research and make sure to apply to companies who are most likely to offer you credit.
- Check your credit score before you apply.
- Consider your lender and the loan carefully.
- If you have got bad credit, try to improve it.
Read the fine print as some lenders will show you their best rates to appeal to you and draw you in but then will disclose at a later date that those rates are reserved for their best customers only. To ensure you get the rates you want, always make sure that you read the company's terms and conditions and be aware of the techniques lenders will use to attract you.
Checklist before you Apply
To ensure you've got everything sorted before you apply, ask yourself whether you can tick all of the following boxes:
- Make sure you understand what you're borrowing by understanding all the industry based long term loan jargon and terms before you apply for a loan.
- Assess your circumstances to make sure that you will benefit from the loan instead of being made more financially worse off because of it.
- Consider if you can budget to cover the costs, make sure your circumstances aren't likely to change during the repayment term and make sure you're not having any second thoughts about anything.
- Is your reason for the loan a good enough reason? You may want that holiday but do you need it if it means being tied down by a financial burden for the next few of years?
- Is the term of the loan correct? If you are taking out a five-year long term loan for a car that you only intend to have for three years, then you might want to reconsider paying a loan on an asset that you no longer own. So, make sure the term matches what you are going to use the credit for, as although it may seem better to stretch out the payments for as long as possible, you do not want to risk paying an early redemption charge for something you no longer own.
- Can you improve the deal? If you have a less than desirable credit score, or if your score could do with a little bit of a boost, then you could consider reading our section about applying for a long term loan with bad credit.
If you have bad credit and are looking to see whether you would be eligible for a loan, there are soft credit search tools such as eligibility checkers and calculators that you can use to check if you are likely to be accepted or not. These checkers such as the one one Money Saving Expert are helpful because not only are they free of charge but they won't show up on your credit file.
What happens after I apply?
If you've completed the previous steps, then the only thing left to do is apply!
Then after you have applied for a loan, a few things can happen. If you have had your application for a loan accepted, then you will be sent documentation that you will need to sign for the funds to be released and paid into your bank account.
How long will it take for the money to reach my account?
Moreover, how long it can take to be paid into your account depends on a few different factors. For instance, if you applied for your loan online, you can expect to receive the funds within 48-72 hours.
However, if you applied via telephone, then the process could take up to 3-5 business working days. There is no set time for lenders, but you will be pleasantly surprised to find that the vast majority of lenders offering long term loans do offer an extremely prompt service.
What happens if my application is refused?
If your loan application is refused, then you will receive some follow up correspondence regarding as to why you were rejected, along with the details of credit reference agencies. This will allow you to view your credit file to see why you were refused a loan.
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