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Understanding the terms of your loan

The terms and conditions attached to your loan can be a daunting prospect, but it’s important to understand them. Find out more about what all that small print means.

Whenever you are approved for a loan, one of the first things you’ll receive from the lender is a list of contractual terms and conditions.

Before accepting the loan, it’s important to not only read over these conditions, but also to get to grips with the terminology and fully understand the agreement you’re signing up for.

Though it may seem like a long and confusing read, it’s important that you understand the terms and conditions of your loan in full. Within this agreement is all the information you need, covering how you’ll pay back your loan as well as when, and what could happen if you don’t.

You should always ensure you read the terms and conditions before signing any contractual agreement. If you’re struggling to understand the terms of your loan, from the monthly repayments to the overall interest, our expert guide can help you make sense of the terminology.

Why do you need to understand your loan terms and conditions?

Before you accept your loan, you’ll be sent a document containing the agreement’s terms and conditions. It’s important that you study it in depth, as it contains all the details relating to your repayment plan and what could happen if you aren’t able to keep to the agreement.

Make sure you understand what you’re signing up for before agreeing to any contract. If you are still unsure, feel free to discuss any queries you have with your lender or broker.

Can I extend my loan term?

Extension of your loan agreement is possible in many cases, but will be at the lender’s discretion. You can arrange to extend the terms of your loan. Sometimes this will result in lower monthly payments, should you opt to spread the cost over a longer period.

However, such an arrangement might see you incur higher interest charges than your original terms, depending on your situation and the financial market, which might mean you pay back more in the long run.

Important loan terms and conditions

You’ll likely come across a few of these key phrases and terms when reading your loan conditions. Here’s a breakdown of what they all mean to help you better understand your terms.

Interest rates

Interest rates refer to the amount you’ll be charged on your loan per payment. You’ll be required to pay it back along with the amount you originally borrowed, usually monthly. It is typically displayed as a percentage of the borrowed amount and usually comes in two forms:


APR stands for Annual Percentage Rate and is a way to calculate interest charged on a loan. An APR is often given as representative at the application stage and is not always the rate you’ll be offered.

Secured and unsecured

Loans are available as a secured or unsecured arrangement. In a secured loan, your borrowing is linked to an asset you own, such as your home. If you are unable to meet your repayment terms, the lender has the legal right to take possession of the property as a form of repayment. However, because of this added security for lenders, borrowers can sometimes be offered lower interest rates.

Unsecured loans, meanwhile, are not linked to your personal collateral, and often come with higher interest rates as a result. If you don’t meet your payments, the lender won’t be able to repossess anything you own, but they can take you to court to recover what you owe them.

Default terms and what could happen

Should you repeatedly miss repayments on your loan, you face defaulting on your agreement. This means you have been unable to pay back the loan as per your original agreement with the lender. Defaulting on a loan will adversely affect your credit score and you risk the lender taking legal action against you to recover the outstanding amount. Should you be faced with defaulting, it’s best to contact your loan provider as soon as you can to try to come to an agreement that suits both parties.

Repayment terms

The repayment term is the period in which you’ve agreed to repay the borrowed amount. This can be anywhere from a few months to a decade or more.

Repayment holidays

Some lenders will allow you to take a break from paying back your agreed amount. This period, which can be anywhere up to a year, is known as a repayment holiday. Such an agreement could eventually increase your total interest payable, and once you restart payment of your loan, this may mean it takes you longer to pay off your loan in full.

Loan payment deferment

Similar to repayment holidays, you may be able to come to an agreement with your lender around how and when you pay back your loan. Some lenders will let you defer the first payment for a month or two. This is known as a loan payment deferment.

Early payment penalties

Though it can be good to pay back your loan as quickly as possible, some lenders will charge an early payment penalty. This is to make up for the interest they’ll be missing out on if you pay off your loan early.

Though there can be some confusing terminology and phrases when it comes to your loan documentation, with a little research, you can make easy work of your terms. A broker like Norton Finance can help advise you on what loan best suits your financial situation and any potential next steps.

Explore more about loans, mortgages and how Norton Finance can help.


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