Every day, mail drops through your letterbox, offering loans at fantastic rates. But how can you tell if that is the right loan for you? With so much jargon and small print to wade through, it is tempting to take the first loan you find - and that could cost you dearly!

To make life easy for you, I have written this article. It contains free and impartial information about all aspects of getting a loan. There is no small print and I have kept jargon to an absolute minimum!

Secured Loans

A secured personal loan is so called as the amount you borrow is secured against the value of a property, usually your home. Obviously, you will need to be a homeowner to obtain a secured loan.

The advantage of this type of loan is that there is less risk to the lender, as they are guaranteed to get their money back somehow, even it means repossessing your property. Although this makes secured loans typically cheaper than their unsecured counterparts, it also represents a significant hazard. If you are unable to meet your loan repayments, then you may lose your home. So proceed with caution!

Unsecured Loans

If you are not a homeowner, or have no other collateral, you will have to opt for an unsecured loan.

These are quick to arrange and are less risky as you will not lose your home if you are unable to repay the loan. But because there is no guarantee that the lender will get their money back, the interest rates charged are usually higher than those attached to secured loans.

When you apply for an unsecured loan, the lender will check your credit history. Although the loan is unsecured, some lenders will still insist on you being a homeowner as it gives them more confidence that you will not default.

Interest Rates

Lenders make their profit by charging you interest on the amount of money you borrow. By law they must express the interest charged as an Annual Percentage Rate (APR). This figure reflects the true cost of the loan and includes interest payments and any other fees.

The APR makes life easier for you when you are shopping around for a loan as it means you can effectively compare products.

Watch out when only the monthly interest rate is advertised. This is not necessarily a reflection of the true cost of the loan as it does not take into account fees and other charges.

The rate of interest charged by a lender will vary according to their perception of risk. If they consider you to be a low risk (i.e. there is less chance that you will not repay the amount borrowed) then the rate of interest offered to you will be lower than if you were considered a high risk applicant. In assessing risk, a lender will consider factors such as your personal circumstances, credit history and, if trying to obtain a secure loan, the level of collateral offered.

As with mortgages, interest rates may be fixed for the term of the loan, or you may be offered a variable rate. If the rate is fixed, then it is easier for you to budget as you will repay the same amount each month. A fixed rate will protect you from rises in interest rates, but they will also prevent you from taking advantage if rates fall. By the same token, variable interest rates will make it harder to budget each month and your monthly repayments will rise and fall as interest rates change.

Repayment Options

How you repay your loan will depend upon the conditions set by your lender, and these can vary from product to product.

Some loans last for a few months, others for many years. A lender may ask you to make monthly repayments. Others, although this is rare, will allow you to pay annually.

Most lenders will build a redemption penalty into the terms and conditions of the loan. This means that, if you decide to repay your loan in full before loan period as come to an end, you will have to pay the lender an additional sum of money, usually an extra month-s interest.

Flexible loans do exist, however. These will allow you to save money by repaying your loan early without any redemption penalties. But remember to take into account that the interest rate you are being offered in the first place with a flexible loan may not be as favourable as the rate attached to a standard repayment loan.

And that-s all there is to know about loans in general.