What is a loan?
Many consumers opt for a personal loan at some stage, whether it's to cover the likes of a new car, a wedding or a family getaway, or to consolidate debt into a single payment. However, it's essential that anyone thinking about taking out a loan is well informed. There are many loans on the market designed for various purposes and people in different circumstances, and understanding how they work is the first step in borrowing responsibly. With that in mind, we've put together this guide covering some important loan facts.
A loan is a financial contract in which one party – the lender – agrees to give another party – the borrower – a specific amount of money, to be paid back monthly over a set period of time. There will also be interest payments at an agreed rate, and sometimes additional charges for the administration of the loan. The terms and conditions of a loan will vary from lender to lender, but will be specified in the contract. The borrower must adhere to the repayment terms stated in the contract – especially repayment dates and interest rates.
Loans come in all shapes and sizes, but, overall, there are two main types: secured and unsecured loans. The main difference is that a secured loan will use an asset – usually your home – as security, whereas an unsecured loan is available to most people provided they have a decent credit rating and are in employment.
Applying for a loan
When it comes to applying for a loan, borrowers should ideally have a clear idea of how much they want to take out, along with how much they can afford in loan repayments, before they get the ball rolling with their loan application. A loan calculator, a tool offered by most major banks, can help you to work out what your monthly repayments might be.
We all frequently enter into contracts, whether it's joining a gym, buying something online or taking out a loan. You have a 14 day cooling off period during which you can change your mind. With a Tesco Bank Loan this period starts the day after you receive your confirmation letter. If you want to cancel your loan without paying interest you must tell us either by calling or writing to us and then repay the loan within 30 days.