There are several reasons why people might want to have a personal loan. It may be to pay for an unexpected outgoing, it may be to pay for a holiday or even a wedding - there are numerous reasons why people at some point may need a personal loan.
A loan is different to a mortgage in that, unlike a mortgage or a secured loan, a personal loan is not secured against your home or an asset. So you are less likely to lose that asset or home if you default or don’t pay your personal loan. However, you still have to make up those repayments and pay off your loan at the end of the period.
There are a few questions you need to consider to work out if a personal loan is right for you. Firstly, the amount that you require to borrow - classically, a personal loan would be in the range of £1,000 to £50,000. You also need to consider what your credit history would be. The better your credit history the more likely you are to be able to get a personal loan. And then lastly is to understand whether you’re likely to be able to pay that borrowing off quickly or whether it’s going to extend over a period of years.
A loan can help you manage your debt by allowing you to consolidate your debts into one place, making it easier in that you’re simply paying back one lender on a monthly basis, but also you can manage your debt to a budget that you can afford by spreading the period of that loan to suit you. And almost most importantly, you can consolidate your more expensive debts, for example on a store card or a credit card, to reduce the interest that you are paying on that debt.
The amount that you can borrow with a personal loan varies on your personal circumstances and the financial information that you’ve given your lender. The length of time that you can borrow the money for varies by lender, but there are two things you need to consider when choosing this length. Firstly, the interest that you pay will add up over that period. Therefore, it’s sensible to choose the shortest period that you can afford to make the repayments on. Secondly, if there’s a chance you might repay it early, it’s wise to check that your lender is flexible to early repayments.
The APR of your loan is the Annual Percentage Rate. This is where the lender will add up the interest rate charge of your loan and add it to the set up charges or any annual charges, to give you your total annual charge. What this APR doesn’t include is any additional charges, for example late repayment fees, that may be incurred during the loan.
One of the best ways of comparing different loans of different interest rates and lengths is to look at the total amount repayable. This tells you, over the entire life of the loan, how much you will have to repay in total.
In summary, make sure you know the repayment terms of your loan before signing up and make sure you’ll have enough income to make the repayments on time and without any worries.
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