Loans Guides

Understanding your loan

Thinking about getting a loan? To get the best deal it's crucial that you understand a few key terms, and we're here to help... (Updated 22/7/09)

Understand your loan deal before you commit to anything, and you could save yourself a lot of hassle in the long run.

In this guide we explain the key loan terms that you need to know, as well as showing you what to look out for when choosing a loan.

Alliance Leicester Unsecured Loan

Company	% Typical APR
	Borrow between £7,500 and £15,000 with Alliance & Leicester, 8.0% APR typical.

Loans terms you need to know:

APR: Annual Percentage Rate. This is the amount of interest you’ll pay over 12 months. If a lender advertises its monthly interest rate, ask for the APR so that you can compare it to other loans.
Early redemption fee / settlement penalty: The amount some lenders will ask you to pay if you decide to settle your debt before the end of the loan term.
Loan term: The length of time you’ll be borrowing the money for. For unsecured loans, this is usually between one and 10 years.
Credit rating: Lenders will check your credit rating before deciding whether to give you a loan. It’s a measure of how big a risk you represent, so it’s based on how well you’ve managed to repay debts in the past, among other things.

About APRs

Looking at the APR is the best way to start comparing different loans – it’s a good measure of how competitive a loan is, and there’s no reason to pay more interest than you need to.

You’ll typically get a lower rate with a secured loan as you’ll present less of a risk to the lender this way. Also, online lenders will usually charge less than high street banks and building societies.

Although the APR is the perfect place to start, you’ll need to look at some other factors before you sign up for a loan. For instance, some lenders won’t allow you to borrow for less than a year and some will charge a penalty if you pay off the loan early.

What to look out for when choosing a loan

As well as the APR, there are several other costs you need watch out for when choosing the right loan for you circumstances, including the following:

Payment holidays – Some lenders may offer to defer your repayments for a few months at the start of the loan. However, you will still be being charged during this time and your future repayments will be larger to compensate. Your total amount repayable will be larger too, so avoid this if possible.

PPI