According to statistics published by the Bank of England, recent years have seen lending to individuals in the UK to be running at some £2 billion a month, with a further £1 billion or so in credit card and other unsecured lending arrangements.
It is no exaggeration to say, therefore, that lending is extremely big business in this country. Both lenders and borrowers play a critical role in the economy and that is why the eyes of many economic commentators and decision makers are more or less permanently focused on the health of lending – the extent to which loans are offered and the extent to which they are taken up. Here is our loan guide to make sure you are clued up.
Who are the typical borrowers?
Loans are useful for a whole host of purposes – both individual and corporate:
on an individual level, for example, a loan may help to provide the funds needed to meet an emergency or unbudgeted item of expenditure;
the use of a credit card, of course, is a form of lending and one that might be used by just about anyone on an almost daily basis;
in addition to loans which are advanced on such a largely unsecured basis, however, there are also those – typically of substantially greater sums, borrowed over longer periods of time – which are secured against the personal assets of the individual;
a prime example of the secured loan, for instance, is the mortgage you might be using to pay for the purchase of your home;
but loans are also the lifeblood of just about every kind of business – from the smallest, sole trader, right up to the largest of the multinational companies;
if you are a small to medium sized business, a loan might be critical to your latest plans for expansion, to help cash flow problems or simply to provide you additional cash in hand;
loans for business use also extend to landlords who have bought to let – whether the unsecured borrowing is to meet an item of operational spending or a mortgage secured against the value of the let property itself.
As already mentioned, loans fall into one of two very broad categories – with countless variations on the principal themes of:
unsecured borrowing – where the decision to advance the funds is made entirely on the lender’s assessment of your ability to repay the loan and typically depending on the monthly disposable income you may declare; or
secured borrowing – where the lender seeks to guarantee your ability to repay any outstanding balance on the loan by taking a charge over assets you own that are at least equal in value to the size of the sum borrowed.
Is there anything I need to know?
The single golden rule, from the moment you first take out a loan, is to remember that it needs to be repaid.
Repayment terms form part of the contract between you as the borrower, and the lender. These are typically determined by the amount of the loan advanced, the period over which repayments are going to be made and whether the borrowing is secured or unsecured.
Check to see whether your loan includes:
a payment holiday;
a financial penalty if you are fortunate enough to be able to repay the amount early;
any charges for insurances within the lending amount that you do not require.
What happens if I don’t pay?
If you default on your responsibility to repay a loan, the consequences may be dire.
In the case of an unsecured loan, your lender has the right to take legal proceedings in the courts to recover what you owe. This may result in the court – typically through a County Court Judgment – ordering you to repay the outstanding balance of the loan and, as a result, considerable difficulty in your raising credit from any other source for some time to come.
If you default on your repayments of a secured loan, you risk losing to the lender the asset offered in security.
Lending is not only a way of life, but also plays a fundamental and critical role in the performance and health of the British economy as a whole.