Borrowing

LOANS

Loans are most suitable for planned purchases, such as home
improvements, college fees or car purchase;

Long-term borrowing: loans are generally for 3, 5 or 10 years with
a choice of a fixed or variable rate option.

Types of loans you can take out in the UK:

 Homeowner loans
 Bad credit loans
 Self employed loans

MORTGAGES

Mortgages are loans where the bank provides you with the money
to, for example, purchase a house (planned purchase);

The money is deposited in your account and you will be required

to pay the mortgage by instalments over a specified period of time,
for example 25 years or more (long-term borrowing);

While you have the mortgage, the bank retains rights over the
house, in other words, you only own the house once you have
cleared the mortgage.

Some examples are:

 Repayment mortgages
 Interest-only mortgages
 Fixed-rate mortgages
 Variable rate mortgages
 Flexible mortgages

OVERDRAFTS

Overdrafts are not suitable for planned purchases; overdrafts are
arrangements where the bank allows you, for an agreed time, to
spend more money than you have in your account (short-term
borrowing);

The customer is given permission to overdraw an account up to a

certain limit/agreed amount (the value of the overdraft) on which
you pay a certain amount of interest.
 Differences between loans and overdrafts
LOANS
1. The money for a loan is
immediately deposited in
the customer’s account
2. Long-term borrowing:
loans are generally for three
to five years with competitive
interest rates and a choice
of a fixed or variable
interest rate option
3. Loans are most suitable
for planned purchases (such
as home improvements or car
purchase)
4. Repayment: the loan may
be repaid in weekly,
fortnightly or monthly
instalments (whichever
suits you best)
OVERDRAFTS
1. An overdraft is an
arrangement where the bank
allows you, for an agreed time,
to spend more money than you
have in your account; the
customer is given permission
to overdraw an account up to a
certain limit (the value of the
overdraft)
2. Short-term borrowing
3. Overdrafts are not suitable
for planned purchases
4. Repayment: the amount of
the overdraft and the length of
time that it lasts should be
agreed in advance with your
bank