Personal loan FAQ

Secured loans

A secured loan, sometimes referred to as a homeowner loan, is only available to homeowners, and means that the loan is secured against the value of the property. Because these loans pose less of a risk to lenders, as a rule secured loans are offered at far better rates than other types of loans. They also tend to be much easier to obtain, as the lender knows the repayments will be met, and so can be a desirable option for homeowners with a poor credit history or county court judgments, or anyone that has previously struggled to have a loan application approved.

Unsecured loans

An unsecured loan means that you are not securing the value of the loan against your property. This means that the lender is at a much greater risk of losing his money back should you file for bankruptcy and therefore rates reflect this risk by tending to be relatively high in interest.

Loan Protection
Loan insurance policies cover your personal loan if you are unable to work because of illness, accident or disability, or you become unemployed. Some loan insurance providers allow you to vary the type of cover, so you can choose just accident and sickness, or just unemployment cover, for example; with loan insurances the policy covers your usual monthly repayments that you make to your lender, most loan insurance polices stop paying after a set period, normally 12 months, but benefits may carry on paying until the loan is paid off and not just for a limited period.

Loan insurance policies aren't simple to understand and contain a whole host of terms and conditions and exclusions. You need to read the loan insurance policy document carefully to make sure you understand exactly what you're covered for; and more importantly what's not covered. The company that sells you the loan insurance policy should explain the important cover details and draw your attention to any important or unusual exclusions. It should make sure the loan insurance policy it sells you is suitable for your needs. However, many loan companies are failing to do this.

When your loan insurance policy starts, you normally have to wait for a month or two before you are eligible to claim. For example, typically you can't claim for unemployment until you've had the policy for 120 days. With accident and sickness, you can normally make a claim as soon as the policy starts, or sometimes you have to wait until you've had the loan insurance policy for 15 or 30 days.
Once you are eligible to claim, you normally have to be sick or unemployed for 30 or 60 days before you can receive any money. However, some loan insurance policies will backdate the benefit to the start of your claim.

Before you can claim for unemployment, you normally need to have been in full-time work for six months. There can be different requirements if you are on a fixed-term contract or are self-employed. If you work part-time, you normally need to be employed for more than 16 hours a week to be able to qualify for cover. Always make sure that you are eligible for cover when you take out the loan insurance policy.
Claims as a result of medical problem that you have had, or were treated for in the last year, won't normally be covered under a loan insurance policy. This could mean that your claim is turned down if you are unable to work because of an existing condition. Under the insurance codes companies have a duty to ensure that your loan insurance policy they sell you is suitable and matches your requirements. It is also important that you declare anything that you think could affect your cover.

The Financial Ombudsman Service (FOS) dealt with more than 700 loan insurance complaints in the year 2000 to 2001. Most problems stem from people taking out unsuitable loan insurance policies.
If you are unhappy about how your claim has been handled, or you are unhappy with the outcome, and you have already tried complaining to the insurer, you can take your complaint to the financial ombudsman.
Visit the " Financial Ombudsman website http://www.financial-ombudsman.org.uk/ for further details.

Always make sure you are eligible for cover when you take out a loan insurance policy.

UK personal loan index