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The term bank loan means a loan lent by bank, building society or finance company the terms and rates of which can vary considerably based on your needs and credit worthiness.

Loans of this type usually fall into two main categories;

Unsecured or Personal loans, where the lender has no security for the money they lend you and as such reply on your credit worthiness. They will usually check your status with a credit reporting agency such as Equifax and Experian . If you are already know to the lender (your bank) or you have borrowed (and repaid) a previous loan then borrowing can be easier. Interest rates can be high on less credit worthy people, and very much varies with your credit status.
Secured Loans - where the lender takes a legal charge on an asset, your home or car being typical examples. Loans on property after often "second charges" additional to a first charge or mortgage. You can have many such charges provided there is sufficient equity (value) in your property. Interest rates can be more attractive but again varies with status. A good status person can often borrow unsecured at better rates than some less credit worthy secured borrowers.

Loans are for a fixed term usually from 1 to 10 years, less for personal loans, and may not be available for older people (65+). Loans may be restricted in length by age as loans usually required to be repaid before the maximum entry age is reached.

With added interest a monthly repayment is then agreed and you enter into an agreement to repay, usually signing a direct debit to have the money collected direct from your bank. It is important that the DD i set to a convenient date to ensure moneys are available as loan repayments are often high and vital to maintain.

If you know money is tight and a direct debit is not going to be paid through shortage of funds - cancel with the bank - or if time allows contact the lender and ask them to defer the request or change the collection date.

A missed payment may involve a charge added to your account, if this was via SO or DD via your bank you may incurred TWO FINES potentially £20-£100 for missing ONE PAYMENT which could have been avoided by a little forward thinking and planning.

If after a period of several missed payments you find yourself unable to meet your obligations try and negotiate with the lender for lower payments, or even rescheduling the debt over a longer period. It is better to pay a little, it shows responsibility, more so if you contact the lender and explain your dilemma and that you are trying to meet your obligations.

If you are unable to pay in any form then the lenders will take action based on the type of loan;

Personal and Secured Loans - formal issue of a default notice and a period of time to remedy the problem failing which they will take you to court and secure a CCJ (County Court Judgement). Once the situation gets to this point nothing short of payment of the entire debt plus legal and court costs may satisfied the lender. The lender could then instruct bailiffs to seize goods in settlement or issue bankruptcy proceedings.

Secured Loans - here the lender has a better remedy in that he can call in the security by say repossessing the motor vehicle, or evicting you from your home and selling the property.

Repossession of a home can only be enforced by a court order and a period of time given for you to find alternative accommodation say 28 days. After then the lender sells the house and all costs plus his debt is paid from the proceeds. Any "profit" is then yours.

Where the debt exceeds the value of the property (called negative equity) the lender may prefer to look at other options of being paid lower instalments which may give him a greater return.

Where a lender sells a house at a loss he can still turn to the borrower for the remainder of the debt plus costs, using the same methods as for Personal and Unsecured loans by using court actions, bailiffs and bankruptcy.

For more information see The British Bankers web site http://www.bba.org.uk/public/consumers/bankfacts

Information on this web site is provided in good faith, it is not legal advice. Members and visitors to the web site are advised to take professional legal and financial advice before entering into any contractual obligation concerning new financial obligations or debt solutions.

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