All you need to know about personal loans
In a perfect world, we’d all have a savings account, a current account and a cash ISA that we could dip into when things go wrong. But every now and then we need an extra injection of cash. Credit cards are a useful stopgap when managed carefully, but for longer term planning and larger expenses, such as a new car or a replacement boiler, a personal loan may be a better option. Here’s our handy guide on how to get the best deals available.
What is a personal loan?
A personal loan lets you borrow a certain amount of money over a fixed term, at a fixed rate of interest. Most banks and building societies offer personal loans up to about £25,000.
Repayments are usually spread over a fixed period from one to ten years, depending on your personal circumstances: for example, how much money you earn each month and your regular monthly outgoings. For higher values, the lender may want you to offer an asset as security.
Is a personal loan better than using a credit card?
An unsecured personal loan can be a cheaper way to borrow money than a credit card, if you’re looking to borrow a lump sum over a set period of time.
What should I consider when looking for a personal loan?
When looking for a person loan, consider the APR (Annual Percentage Rate) of the loan, whether any penalties are charged for early repayment and make sure you can afford the repayments.
The APR (Annual Percentage Rate) is the total amount the loan will cost you on top of the amount borrowed, including interest and charges. The APR advertised on all personal loans is representative – which means it’s just an example. Not everyone will be offered the APR advertised. You could end up with a higher APR than you’ve applied for.
Early Repayment Penalties are charged by some lenders if you try to pay back the loan quicker, but not all providers charge these. If you think you’ll want to pay off your loan early, it might be sensible to look at one of these lenders.
Making every payment is really important. Should you fall behind in making repayments, or stop them altogether, the provider could take legal action against you. This is why it’s so important to compare personal loans to find one most suited to you.
What is a credit check and how does it affect me?
A credit check or credit report helps lenders find out about your credit history. It helps them assess whether you’re able, and likely, to meet loan repayments on time.
Your credit history, among other criteria, is used by lenders when deciding on whether to give you a personal loan or a much larger, longer term loan like a mortgage.
You’ll need to provide the lender with various information, including your address history and bank details. Credit reference agencies then supply any records of late payments and missed payments, and if you’ve had any county court judgements against you.
Your credit details will affect the amount you can borrow as well as the terms of your loan, such as the interest rate.
Your credit history will sometimes ‘wave a red flag’ if you’ve applied for multiple loans – whether or not you were accepted – and it could influence the decision. This is another good reason to thoroughly compare your options before actually making a loan application.
Why compare personal loans?
Start a personal loan comparison with us and you can search by how much you want to borrow or the maximum amount you can afford to repay each month. Then enter in the length of time you'll be repaying over, and you’ll get a table showing the options.
Please remember though, that however low the APR, a loan can be an expensive way to get money and isn’t without risk if you fail to meet the terms agreed. Think carefully whether the loan is essential and thoroughly compare all of your options before taking the step to apply.
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