Choices relating to money sometimes force people to make tough decisions, and sometimes they even make them take steps in the wrong direction. Unfortunately, a vast array of evidence shows that aversion towards financial decisions leads many people to overlook some important issues like saving enough for the future, funding their retirement, managing their debt, and even asking for a loan.
If you don’t have much experience understanding your finances or financial products, you may be overwhelmed by too many choices. But as valid as these reasons may be, it is never too late to seek professional financial advice.
When it comes to loans, the financial industry tends to use a lot of jargon, and it can get really confusing, to the point that each piece of advice sounds like good advice.
There are many different types of loans, so it’s important to seek professional financial advice before you borrow money. By having a better understanding of loans, you can take care of your current financial situation and make wiser decisions about your future debt.
Since not all loans are suitable for everyone, it is key to get familiar with the terminology and ask for advice to determine which one can best help you meet your financial needs.
Understanding the terminology
Before asking for advice on taking out a loan, it’s important to get familiar with the terminology. After all, when you take out a loan you’re also taking a financial risk, which is why knowing the vocabulary you will come across is key.
Principal: Refers to the amount you borrow and have to pay back, not including interest fees.
Interest: Normally expressed as a percentage of the principal, the interest refers to the amount the lender is charging you for borrowing the money.
Annual Percentage Rate: Refers to the interest the lender will charge you for taking out the loan. It is a legal requirement for lenders to mention their annual percentage rates so that borrowers can compare loans.
Term: Refers to the amount of time in which you intend to pay back the loan.
Monthly Payment: Loans are usually paid through monthly payments during the chosen term.
Total Amount Repayable: This figure tells you the total amount of money you’ll be expected to pay back for your loan, including any other costs and fees.
A financial adviser will guide you through the process of choosing the right loan according to the amount of risk you can take. Make sure that, when asking for loans advice or any other financial advice, you’re speaking with the right individual.
When should you get financial advice?
Not everyone feels capable of dealing with their personal finances without some help. However, before seeking professional financial advice, it is always a good idea to think about what type of financial help you really need and can afford.
For many people, getting financial advice doesn’t go beyond knowing how to better manage their debt or how to save enough for the future. However, significant events in your life, such as having a child, being furloughed from your job or deciding to take a loan are just some of the scenarios in which the opinion of a professional comes in handy.
How to get financial advice for free
It is a common misconception that both financial advice and financial guidance are the same thing. When it comes to loans, for example, financial guidance provides you with the different options you can choose from, but they should not recommend a particular loan over another. Financial advice provides you with information on the type of loan that best suits your needs.
If you’re just exploring options and are looking for general pieces of advice, there are several places where you can find financial help for free, such as:
-Charities such as StepChange
-Financial websites or magazines
Utilise your contacts
However, while the information these places offer might be reliable, it is not considered as regulated financial advice. If you were to buy a product or take out a loan based only on the information you can find in these places, you would be held accountable for the decisions you make and the outcome.
Even if you’re unable to pay for financial advice, you might be able to find someone who is more knowledgeable in the area than you. Have a look through your contacts; do you know anyone who studied finance? Economics? Or maybe a family friend or relative could help you out. Sometimes it just takes a quick phone call to help you understand something that seemed previously unintelligible.
What to do if you are refused a loan
When lenders consider you as a risky investment, chances are they will not give you a loan. You could be refused a loan because you have applied for several loans or credits in the past. Multiple loan applications indicate that money management isn’t your forte, and that is a red flag for lenders.
If you have been refused a loan in the past, there are several things you can do right away:
First, start by asking the lender why they refused you, and what information they based their decision on. If they based their decision on a credit reference, the lender should tell you which credit reference they used.
Once you have this information, you can ask a financial adviser to take a look at your credit file. If they find a mistake in your credit file, reach out to the credit reference agency and have them correct it. Make sure to explain why there is a mistake and ask your financial adviser to provide you with evidence to support this claim. Agencies have up to 28 days to respond.
In the meantime, stop applying for more traditional loans, as this will show up in your credit file and potentially damage your credit score. This isn’t the case with Salad Money, however. As we use Open Banking, we don’t refer to your credit score in any way, instead focusing on your current financial situation.
What to do if you can’t repay a loan
Another common issue when it comes to dealing with loans is being unable to repay it within the time specified in the term.When you miss a payment of your loan, the lender will charge you a fee, making it even harder for you to pay back the full amount.
In fact, your circumstances will determine your options if you can’t repay your loan. Most of the time, these options include speaking to your lender, prioritising your debts or consolidating your debts.