As the name would suggest, a long-term loan is one that is spread over a set period, as opposed to loans that need to be repaid within a shorter timeframe, such as a payday loan. However, the terms and conditions associated with a long-term loan can differ depending on whether the loan is secured or not. There can also be other factors that determine how much interest you pay in relation to the loan, as well as how much you can expect to borrow.
Table of Contents
- How Long-Term Loans Work
- Who Can Apply For a Long-Term Loan?
- How to Ensure a Lender is Genuine
- Apply Online
- Apply via Telephone
- What Happens Next?
- Bad Credit?
- Find the Best Long-Term Loan Deals
- Understanding a Representative Interest Rate
- The Cooling Off Period Explained
- Pros and Cons of a Long-Term Loan
How Long-Term Loans Work
Long-term loans can be taken out for many different reasons. For example, you may want to carry out some renovations around the home, or apply for a loan to fund a business venture. With this in mind, it's important to ensure that we have the capabilities to repay the loan, as well as ensuring we're applying for a loan for the right reasons.
Although you will be applying for a long-term loan, it's worth noting that the loan may also be referred to as a personal loan, secured loan or unsecured loan. This is purely due to the many categories that loans can fall under. Therefore, it is important that applicants check all their correspondence in relation to their loan before making a commitment.
A personal long-term loan would be used for loans between £5,000 and £15,000. If an applicant is looking to borrow more than £15,000 then applicants would need to choose a secured loan. Evidently there can be some limitation associated with a long-term loan. For example, if you currently rent your property, then you would be able to borrow anything over £15,000.
Who Can Apply For a Long-Term Loan?
Due to the different types of long-term loans available, a long-term loan can be available to applicants from different backgrounds. Those who don't have assets can still apply for a loan, although the amount offered could be lower than with a secured option. Similarly, those with assets can receive a large loan over a long period of time, using their assets as collateral.
In theory, anyone can apply for a long-term loan, they just need to ensure that they're are applying for a loan that's is tailored towards their needs and budget.
How to Ensure a Lender is Genuine
Evidently, one of the main concerns when applying for a loan is how legitimate a company is. Fortunately, the Internet allows for some easy research to be carried out. In the first instance you can look towards sites such as Google and Trustpilot for reviews. Another avenue to explore is the online presence of a company. If the company doesn't have a registered UK address and contact number, you would probably be better advised to look elsewhere.
Even the structure of the site can help you determine as to whether a lender can be trusted. if you find the site cannot be navigated and obtaining contact details becomes a larger task than it should, then you may be more comfortable looking elsewhere. A genuine company will have no issue with supplying you with contact details and testimonials.
More often than not, applicants will make an online application with a lender. The lender will present the applicant with an online form that looks to capture data about their identity so it can ensure that the loan is being paid to the right person. The form will also look to capture information about the applicant's current financial commitments and employment status.
Once the online form has been completed, one of two things can happen. The first is that you will be offered an instant online decision, with further information either being sent to your email, or your home address.
In some instances, the lender may not be able to give you an online decision, so may need to acquire some further information before making a final decision. Again, the lender will either contact you by email or home address. Some lender may choose to contact you via telephone if a contact number was listed on your application.
Apply via Telephone
Making an application for a long-term loan over the telephone is similar to that of an online application, only you will be answering questions asked by a representative of the company. The application process can take a little longer, but it does allow you to ask any questions you have in relation to your loan, such as the interest rate, and how long it will take you to repay the loan along with the interest.
As before, you will either receive an instant decision, or be advised that more checks will need to be carried out before a financial decision is made. How the lender chooses to contact you will depend on your preferences, but will be by telephone, mail or email.
What Happens Next?
Following the loan application, a number of things can happen, depending on the decision. Those who have been refused credit will often receive some correspondence along with contact details for credit reference agencies. This allows an applicant to review their current credit score to see why such an application has been refused.
If your loan has been accepted, then you will normally have some documents sent that need to be signed in order for funds to be released. How long it takes for a loan to be paid into the applicant's account can depend on many different factors.
For example, those who have made an online application may find that their loan can be paid in as little as 48 or 72 hours. However, if you opted for a telephone application, then you may find it can take three to five days. There is no set time, and can vary from lender to lender. If you're keen to find out as to how long the transfer time is, it can be worth asking before making an application. However, in most instances, you should find that the majority of lenders offer a prompt service.
If you have had difficulty in the past with credit commitments, it's likely it will have been recorded on your credit file. Some reports may just show the payment as late, whereas others may show as a default. A default will be put in place if you've had to take out some form of payment schedule. If a company has taken you to court in relation to credit, then this will be recorded as a CCJ on your credit report.
While lenders work in many similar ways, it's worth noting that many will have their own application process. However, it's important to be realistic when it comes to making a loan application. If you've recently feel behind on a recent credit commitment, then it's unlikely a lender is going to furnish you with its best rate.
It can be normal to assume that if you have had some issues with regards to repayments in the past, then long-term loans won't be something that is available. While in some cases, this can be true, there are lenders who are more open-minded when it comes to lending money. Although long-term bad credit loans are available, you shouldn't automatically assume you will be eligible.
It can be advisable to check your credit score in advance. Not only does this give you a more realistic overview of what is available to you, but it will also ensure that you are able to dispute any entries that appear to be incorrect.
Those who choose to apply for a loan with a company that specialises in long-term bad credit loans will often find that they have to pay more interest. While this can seem a little unfair in the interim, you have to take into account that such a loan can be seen as risky, and unfortunately the risk factor means that higher interest is applied to help recoup losses from loans that have been unpaid.
Just because an interest rate is higher doesn't mean it will be unreasonable, but as advised, the best offers are only available to those who have an unblemished credit report, as the risk is almost non-existent.
Find the Best Long-Term Loan Deals
When it comes to money, it makes sense that we want to find the best deal when it comes to a long-term loan. As different customers will have different requirements, there is no set template when it comes to a long-term loan, so how does one go about finding the best deal for them?
The first thing you should do is consider your current financial commitments and ascertain as to whether you are in a position to comfortably make the repayments moving forward. A loan can seem like a good idea when money is low and in short supply, but it's important to ascertain as to whether a loan will help or hinder your current position.
Once you have worked out how much you can afford to borrow comfortably, you will need to see what offers there are from different lenders. Referring to your credit score can ensure that you're only applying for loans that are within reach, which means that you're not leaving a series of detrimental footprints of any declinations from lenders that weren't able to off you a loan.
There are many ways of finding great deals on loans, with one of the most popular being a comparison website, which will show a list of lenders and their terms, based on the credentials you enter into the site.
Understanding a Representative Interest Rate
The financial world can be blighted with terminology that makes little sense to some. As such, some can become confused when trying to ascertain what a representative rate is. In laymans terms, a representative rate is an overall snapshot of what lenders can expect to pay in interest. However, as different lenders will meet different levels of criteria, this can alter dramatically.
This isn't to say that a lender is using unsavoury practices, but it is something that lenders need to be aware of before making an application.
If you're not sure what your interest rate is, you shouldn't assume it will automatically be the one listed within the lender's marketing material. As such, you should ensure that you are fully aware of what the interest rate is before making a final decision.
The Cooling Off Period Explained
Whenever you apply for a loan, you are given a 14-day cooling off period. This can be in case any circumstances change, or you have merely changed your mind. The period starts from whenever you receive the agreement, or make a signature, whichever is later.
If you do decide that the long-term loan you applied for was no longer viable, you will be given 30 days in which to repay the money. Interest can only be charged on the time you have been in receipt of the funds. So if you did pay any fees in relation to your loan, these will be refunded to you by the lender.
Pros and Cons of a Long-Term Loan
As is the case with any financial commitment, there can be pros and cons associated with the loan you take out. This is why it is of the utmost importance that applicant ensure that the loan they apply for is best suited to them.
Pros of a Long-Term Loan
- You are fully aware of how much needs to be paid each month.
- Can be used to consolidate debts and lower your current interest rate.
- A longer payment window means that payments don't have to be overbearing.
- Potential for a larger loan.
Cons of a Long-Term Loan
- Loans will always incur interest, but as long-term loans have a longer repayment plan, it's likely you will pay more interest as a result.
- Paying the loan off early could actually be more expensive than using the tenor of the loan.
- Assets could be at risk if your payments fall behind.
If you think you may be in a position to pay the loan off early, don't keep this to yourself. Ask your chosen lender as to what the cost will be should you choose to make an early repayment, and then ascertain as to whether a long-term loan is the way forward, or whether you would be better suited to a different kind of loan.
If you are not 100% sure whether a long term loan is right for you, we have put together some info that may be of help. Click this link to read our article Is a long term loan right for me, to see if this type of loan is suitable for your situation.