There are several factors to think about when comparing unsecured loans, for starters, there’s so much more to consider than just the APR. Find out more about some of the factors you may want to consider when raising finance over 55, here.
There’s so much more to a loan than the APR
At free2, we’ve bold ambitions to act as a comprehensive financial services brand for the over 55s. Our first product offering, The Over 55s Unsecured Loan, is designed to help answer the question of how those in later life could raise substantial financial sums, without having to use a home as security, or withdrawing substantial sums from savings, investments, or drawing down funds from a flexible pension.
Of course, to be truly successful, a new financial product has to be competitive, and that’s why we’re pleased to announce the lowering of our standard APR. But while the APR is important, in our view, it’s by no means the only factor to consider when raising a lump sum.
Comparing unsecured loans
Of course, the great benefit of an unsecured loan is that you’re not using your home as security, but there are other features to look for too:
- Aside from the headline rate, are you able to tailor the repayment term to suit your needs?
- Is the APR fixed for the loan term or is it variable? If variable, are there limits to how much the interest rate may increase during the term?
- What happens in the event of your early demise? Will your next of kin be lumbered with a large debt?
- How much can you borrow overall?
- What are the set-up fees?
- Is your desired loan amount and loan term only available to younger borrowers? Or is it available to older borrowers at fixed terms unsecured?
- Are you able to get a personal loan based on your total guaranteed pension income? Or will your lender only look at a salary from employment? Making it difficult for retired people to qualify.
Comparing loans against other forms of raising finance
Equity release is an obvious choice for older borrowers, so what are the key points to consider?
- APRs are low right now, however, you may want to factor in the term – For example, an unsecured loan that gets paid off after 10 years is a different proposition to a Lifetime Mortgage where you make interest-only payments for life. At age 60 that’s statistically another 24 years, so calculating the total cost of interest is a key point of comparison.
- Understanding the residual debt. For an interest-only lifetime mortgage, the capital will need to be repaid out of the inheritance when you pass away or move into care.
- Similarly, with an interest roll-up lifetime mortgage, you avoid monthly payments, but the rolled-up interest will be calculated and added to the principal amount owed, resulting in a significant dent in your legacy. This often forces the sale of the family home to pay off the debt, which means any desire to keep the home in the family could be defeated.
- You should also compare the fees for setting up an equity release mortgage. These include; conveyancing fees, property valuation, advice charges and mortgage set-up fees.
Using your savings and investments
If you raid the “rainy day” savings fund to access a lump sum, you need to be confident of your timing as such nest-eggs are often hard to replace. Similar factors apply with releasing funds from ISAs, and other forms of investment. You could take cash from a flexible pension pot, but you’ll need to consider any tax implications, and again be confident of your timing. If you realise assets such as selling a business or second home, you need to factor in tax, charges, and other fees.
What to do next?
You could talk to an expert Independent Financial Adviser, who can research the UK financial services market to find you the best solution. Our own Lump Sum Advice Service provides exactly this facility, with a free, no-obligation initial consultation. Or, if you’re curious to discover how much you could borrow through an unsecured loan, you could visit our loan calculator for the Over 55s Unsecured Loan, and get a Decision in Principle in two minutes.
Please note: This article was believed to be accurate at the time of writing and is intended to provide general information only to the reader – it does not constitute advice of any kind. Before making any decision about your savings, investments and your pension, you should consult an Independent Financial Adviser.
Free2 Limited (trading as free2) is an Appointed Representative of RoundShield Consumer Finance Limited (RSCF) which is authorised and regulated by the Financial Conduct Authority (the FCA). free2 is a credit broker, not a lender, and will only offer loans from RSCF – an offer of credit is subject to status and affordability.
Customers wishing to use the free2 Lump Sum Advisory Service will be introduced to partners Money and Advice Planning (MAP). After a free initial consultation your adviser will set out the scope of advice you require and the advice fee payable.