UNSECURED LOANS

Normally there are no set up fees when you take out an unsecured loan. The real cost of the loan is the interest that the loan provider will charge. It can often be quite confusing to understand loan interest rates. Therefore the key to understanding the cost is simply to work out how much you will have to repay over the duration of the loan.

How much will I pay for the loan?
Working out how much you will repay on an unsecured loan is very simple, you just need to know how much you will be repaying each month and for how long the repayments will last.

For example, if you are borrowing £20,000 and are told you will pay £450 a month for 60 months (5 years), the total repayment will be:

£450 x 60 = £27,000

So for borrowing £20,000 over 5 years, you will pay the lender £7000 in interest (or £1400 per year, or £117 per month). 

Where to start

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MORTGAGE OR SECURED LOAN

Generally there will be a set up fee when taking out either a mortgage or secured loan. However, you will not normally pay these fees directly because they will be added to the loan. It is important that you understand what set up fees the lender is proposing so that you understand how these will be paid.

In the same way as an unsecured loan, the majority of the cost of taking a secured loan will be the interest payments. Remember, many secured loans are paid over 10 years (120 months) and many mortgages over 20-25 years. This means that although interest rates are likely to be lower than those of unsecured loans, the effect of compound interest (interest added to interest) will make the loan relatively expensive over the longer term.   

Secured lenders have come under increased pressure in recent years to be transparent about how much their loans cost. If you are considering taking out a mortgage or secured loan, you should ensure you ask the lender for a written statement of how much you will repay if you continue to pay the loan over the full term.