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Different Reasons to Seek Finance

Getting a loan of some sort is something that almost everyone will do during their lifetime. Whether it's agreeing an overdraft with a bank, getting a credit card or taking out a mortgage, raising finance has become extremely common. There are many reasons for wanting to raise finance and its most often because you wish to buy something you can't immediately afford. If you're new to debt and loans, then this article can give you some advice on why you may need credit or a loan.

Big Purchases and Personal Loans

If you're fresh out of school or university, it's highly unlikely that you'll be able to finance something like buying a new car or a round the world trip alone. Of course, it's possible that your parents will put up some or all of the cash, but what if their money is tied up? You'd probably need to get a personal loan to finance something like this. Unless you're going to work while you travel, then you'd probably need at least £5000 to finance a round the world trip (excluding the ticket) but it depends on how long you'd like to travel for – a personal loan would be the clearest answer if you can get one agreed at around 10%. Regarding new car purchases, it's worthwhile to consider second hand vehicles if you're looking for a bargain. It's possible to arrange finance through dealerships, but it's vital to read the small print on these deals, as they can have very high rates of APR (Annual Percentage Rate – the rate at which you'll pay back). While they can be made to look attractive, it's normally best to arrange a personal loan at a bank and use this to purchase the car. Santander currently offer a broad range of competitive loans and might be worth a look

Mortgages

Mortgages are normally concerns for over 25s, as housing has become very expensive in Britain in recent years. It's almost certain that if you need to buy a house, you'll need to arrange a mortgage, because you probably won't have a spare £150,000 lying around. These are effectively loans that use the house as a 'collateral' – if you fail to keep up repayments then the bank you've arranged the mortgage with may be able to repossess your home. There are many differing mortgage products available in the market, each with their own advantages, but as it's possibly one of the biggest financial decisions you'll have to make, you'll need to take your time and be very careful about what you select. Mortgages can take as long as 25 years to pay off, so it will be a substantial debt burden.

Consolidating Debt

For people who have outstanding debts from a variety of sources, for instance, a mortgage, two credit cards and a personal loan, it may be worth getting a new loan to clear your other debts, and then only make one single monthly repayment per month at a lower rate. If you have large outstanding debts, and you have equity to be released in your home (i.e. – your home has increased in value since you bought it) then you may want to rearrange your mortgage or get a secured loan on your house to consolidate. For smaller debts on credit cards and loans under £10,000, it's normally a good idea to use a personal loan. It's also possible that you can get a deal on a 0% balance transfer credit card, and transfer your outstanding balances to that credit card so you don't have to pay interest. Just make sure you pay off that card before the 0% deal expires, or you'll be confronted by the same problem.