When are loans helpful
What are your options?
Is a loan the most sensible way to borrow, or could you look for other credit options?
- Consider your financial situation and how much you can repay
- Don’t let the excitement of special occasions or big purchases cloud your judgement
- For debts you expect to pay off in under a year, a credit card may make more sense
- Combining all your card and overdraft debts into one loan can make it easier to pay them off
Reasons to take out a loan
Paying for special occasions
Many of the key events and milestones in our lives, like weddings, cost more than we have to hand. A loan can help make up any shortfall, but you’ll want to avoid letting the excitement about your event cloud your financial judgement.
Don’t borrow more than you can afford to repay, and remember that taking cost-saving steps when planning your event can save you lots of money down the road by reducing the interest you have to pay.
When you apply for additional borrowing you have the option to completely replace your current loan with a new, larger loan. This combines your existing loan and new borrowing into one, single monthly repayment. This option also allows you to set a new payment term, as long as it’s a year or longer.
If you choose this option, your existing loan is automatically closed as part of the process.
Your new loan could be charged at a higher interest rate than your existing one and your loan term may be longer. There could be a charge to settle your current loan early – but it won’t be more than 58 days’ interest and we’ll tell you how much it’ll be when you apply.
Cars, home improvements and big purchases
Borrowing tips
- For car loans, get the best deal by checking out unsecured loan information from multiple lenders. Dealers offer their own financing, but you’ll often get a better deal if you shop around.
Keep in mind that a dealer offering 0% financing often doesn’t discount the cost of the car itself. Negotiating a 15% discount on the car and then paying a higher interest rate on the loan could be the better deal. - For home improvements, consider your motivation. If you’re looking to increase your home’s value, do a bit of research in advance. Talk to a local estate agent to help you figure out what kinds of changes would add the most value.
- For large purchases, remember it’s cheaper in the long run if you save up the money and buy without a loan. Ask yourself if you need to buy now or if you can afford to wait.
Unexpected expenses
Many people find savings aren’t enough to cover unexpected costs such as vets’ bills, or emergency home or car repairs.
A personal loan offers a structured way to cover your costs, especially if it will take you some time to repay. But if you think you’ll be able to pay the money back within a year, a credit card may offer the more flexible solution, especially if you can take advantage of a 0% interest offer.
Debt consolidation
Debt consolidation is one of the most common reasons to take out a loan. It can help you get your finances under control, but for it to work you need to be able to stick to a budget. You can use the loan to pay outstanding credit card balances, late bills or late loan repayments for example, turning many small debts into one larger one. By taking out a debt consolidation loan you can:
- Lower interest payments: credit cards or store cards may charge you 15%, 20%, or even 30% interest on your balance. While the interest rate you can get for a personal loan depends on your circumstances and the economy in general, it’s usually much lower than a credit card or a store card.
- Simplify your financial situation: rather than getting swamped with bills and statements every month, you’ll have just one loan to repay.
- Make financial planning easier: preparing and sticking to a monthly budget or creating a long-term financial plan is easier with a consolidation loan than with multiple credit card debts. The amount you repay each month is fixed, as is the length of the loan. That means you’ll know exactly how much you need to pay and for how long.
To make a consolidation loan worthwhile, you need to avoid spending any money on those cleared credit cards. To avoid temptation, try not keeping them in your purse or wallet and create a weekly or monthly budget.
When consolidating you should be aware that a new loan could be charged at a higher interest rate than your existing one and the loan term may be longer. So you may pay back more overall. Depending upon the type of loan you have with us, if you repay your loan in full we will make an early settlement adjustment of up to 58 days' interest.
Important legal information
Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.
Eligible deposits with us are protected by the Financial Services Compensation Scheme (FSCS). We are covered by the Financial Ombudsman Service (FOS).