Lending

Should you get a Loan for Home Improvements?

There are many people that find that home improvements are something which they cannot afford to do without borrowing money. Things like replacing bathrooms and kitchens, building extensions or getting roof repairs can be really expensive and are not something that everyone is able to afford. It can therefore be tempting to think that borrowing money is the best idea, but this should be thought through first.

Any loan costs money and so if you borrow money for anything, you will end up paying back more than it cost. This means that you need to carefully consider whether it is worth borrowing the money and having to pay back extra. How worthwhile it is, to pay the extra can depend on the urgency of the work and how much difference it will make to you.

Before you even think about borrowing, you need to consider how much the job is likely to cost and whether you have any savings that could help towards it. It is not worth borrowing money when you have savings as the cost of borrowing will usually be more than the return you are getting on your savings. There will be a few exceptions to this, but in most cases this will be true. Therefore see how much you have saved, how much interest you are getting on those savings and whether it will be cheaper to use this rather than a loan. Even if it is not enough to cover the full cost of the job, it is worth seeing whether it will help to reduce the cost a bit.

Next you should consider how urgent the work is. If the roof is leaking, then obviously you will want it repaired as soon as possible but if you just want a more modern bathroom, you may be more able to wait. If you can wait, then that will give you time to save up some money towards the cost of the job. If you want it done as quickly as possible, then you may need to set a budget and make sure that you save a certain amount of money each month towards it and then you will ensure that you save up quickly. It can be difficult otherwise, to make sure that you do have enough money left each month to save up. You may also be able to raise some extra money by doing some extra hours of work, doing some freelance work or selling some items. All small amounts will add up and it could help you to be able to afford the repair more quickly.

If you feel that it will take you too long to save up and that you are not happy because your home does not look the way that you would like it without having the work done quickly, then you may want to consider a loan. You will need to make sure that you can afford the repayments and that you will be able to continue to do this even if your financial situation changes. You should be able to easily find out how much each monthly repayment will be, depending on the interest rate and the lender that you choose. If you use a comparison website or look on the lenders website, they should have a calculator to show you this.

It is important that if you do decide to have a loan that you find the best deal that you can. Loans differ a lot in price and it is wise to compare them and see which looks the best. Rates do change over time, as the base rate changes loan companies may change their variable rates as well. However, you cannot predict what might happen in this circumstance and so you will need to rely on the facts that you have right now and pick between them. For some people price will be the only important factor, but you may feel that borrowing from a lender you trust, having good customer service and other things may also be important to you as well. It is worth taking time to choose the right one for you.

Whether you decide to have a loan or not is very much a personal decision. You will need to consider the extra cost of paying for the home improvements this way and whether you think that it is worth it. If the work is to repair damage that is causing the house to degrade or living in it to be very uncomfortable then it would seem that it is worth it. If it is just cosmetic, then it may not be so easily justified. However, these decisions are very personal and should be something which is discussed in the household with everyone considering the pros and cons. It is not an easy decision to make and time should be taken to consider it.

Mortgages

When is a Tracker Mortgage the Right Choice?

There are many different mortgages available and it can be confusing to know which one to choose. People will often look at the differences between a fixed rate and a variable mortgage as well as an interest only and repayment, but when the term tracker is thrown into the mix it can confuse things. A tracker mortgage will track the base rate and therefore when the rate changes the mortgage rate will change accordingly. This means that it is a variable rate mortgage and it can be an interest only or repayment.

The great advantage of a tracker mortgage is when the base rates go down. As soon as those rates are reduced your lender will need to reduce your mortgage rate as well. You will immediately benefit from the lower charges on your mortgage and this will either leave you with more money to repay your mortgage or more to spend, depending on how you have it set up. Obviously it can work the other way though and if the base rate goes up; your mortgage will immediately increase as well.

If rates are falling then those with tracker mortgages can be at a great advantage. Many lenders will not lower their rates immediately when the base rate falls and some will not lower their rates at all and so a tracker mortgage is immediately better where that is concerned. Although when rates rise, lenders may also not raise their rates and the tracker mortgage holders will be at a disadvantage. However, it is unlikely that a lender would not put their rate up when base rates increase; more likely that they would not reduce it when rates fall as they will make more profit this way.

The amount of difference an increase or reduction will make to the amount of interest you pay will partly depend on how much the rates change but also on how much your lender charges you in addition to the base rate. For a tracker mortgage your lender will charge you a certain percentage in addition to the base rate. If you pay 2% plus the base rate and the rate falls by a quarter of a percent it will not make such a significant difference, percentage wise, as it would if you were paying 0.5% plus the base rate. However, it will still make a difference and with a loan as big as a mortgage; even small differences count as they all add up in the long term.

Deciding whether to get a tracker is not an easy decision. You will not be able to predict what the interest rates might do over the term of your loan, which is likely to be 25 years. It is not even that easy to predict interest rates in the short term, let alone the long term. If you choose a variable rate, then it is likely to go up if interest rates rise, the same as a tracker, but it may not fall when rates fall or not as quickly or by as much. Often a fixed rate mortgage is seen as a safer bet because you will know exactly how much you will be paying for a certain term. This will not be the full term of the mortgage, usually up to five years. This can give security to those that are concerned about rises in interest rates that they may not be able to afford but also allow them to know exactly how much they will be paying over a certain time period. However, if interest rates fall while they are on a fixed rate, they will be paying a lot more than necessary, so it is wise to be cautious.

Choosing a mortgage is really a case of being able to predict interest rates. To protect yourself against steeply rising interest rates then a low fixed rate mortgage is the best but to take advantage of falling rates then a tracker can be the best. However, you also need to be aware of the costs of these mortgages compared to others on offer too. Plus it is not possible to predict interest rates and you can make guesses, but these are more difficult in the long term. Therefore, whatever decision you make it will always be a risk but make sure that it is a calculated risk by looking at the rates and economic situation and considering what may happen in the future. If you are not sure then talk to a financial advisor as they will be able to look at all mortgages available and show you the ones that will be the best with regards to what you want from a mortgage.

It is also worth remembering that you can remortgage. Therefore if you feel that your mortgage is not offering good value for money, then it is worth looking around at the alternatives. There are comparison sites these days for mortgages, so you can see whether there are any better deals out there and you can research different types of mortgages to see whether it could be worth swapping. You also could ask a financial advisor as to whether they think it would be a sensible idea for you to swap.

Payday Loans

Advantages and Disadvantages of Payday Loans

We hear a lot about payday loans and there are many stories in the press about how badly some people have been stung by them. However, there are now regulations in most countries covering this type of lending so the charges are not as high as they were. It is still not always clear as to whether there are the type of lending that should be considered and so some of the advantages and disadvantages are explained below.

Advantages

Payday loans were designed to provide emergency funds to individuals who had a poor credit rating and could not borrow from elsewhere. As an alternative to a loan shark, being evicted or cut off, they could be a useful resource to have available. If you have no other form of borrowing available, then a payday loan, which will not do a credit check, will be able to let you have some money. In a case where you need to pay a bill or else you risk being evicted from your home or having a service cut off or you need to feed your children, then it can be useful. Having a bit of money available which may not be otherwise can be very handy, especially if it helps pay for your basic needs.

A payday loan is a short term loan which means that you only borrow the money until your next payday. This means that it is likely that you will only be in debt for a few weeks. This is a great advantage to those people who do not like the idea of having a debt hanging over them. With a direct debit set up to automatically pay the debt back when you get paid, you do not even have to remember to make the payment as it will just happen. This means that even if you are forgetful, you will know that the loan will be paid off in full, as long as the money is there to pay it on the agreed day.

Some people like the freedom of having a short term loan which means that the debt is not hanging over their head for a long time. Many other small loans, such as overdrafts and credit cards do not have to be cleared quickly and the fees can add up and this can make these sorts of borrowing more expensive as well as more stressful.

A payday loan can be organised really quickly. The money can be available within a few hours in some cases and this means that if you have an emergency and need money really quickly, you will be able to get it.

Disadvantages

Payday loans do have a reputation for being expensive. They are one of the more expensive ways of borrowing although some things, such as an unauthorised overdraft can be more expensive if it is left unpaid for a long time. The fees and the interest can really add up and if calculated as a percentage of the amount that you borrow is high compared with other ways of borrowing. If you do not pay on time, there will also be other charges and fees which will be higher too.

As there is no credit check for a payday loan, they can be given to anyone even the most vulnerable. There are concerns that those with mental health problems or those that are not good at managing their money could borrow too easily and get themselves into financial difficulty. There are worries that it appeals to those who already have difficulty managing their money and so they will be unlikely to be able to manage the repayments and could end up paying much higher charges as a result.
As the process is so fast, it is difficult to reverse it quickly and so if the borrower does change their mind, it could be too late and they may still have to pay some or all of the charges. This means that if the decision to borrow was made quickly, because of panicking about a bill or feeling out of control and making a poor financial decision.

It can be seen that, like with any type of lending there are pros and cons. It is important to weigh them up and compare this type of lending with other types to see which will be the best for you. It is worth also making sure that you really need to borrow the money in the first place, if you have savings or can wait then it is best not to borrow as it is expensive whichever method you choose. If you need money to pay a bill, then it is worth trying to negotiate first and delay paying until you get your next income coming in so that you can pay it without having to cope with the expense of a loan.