Which loan is right for me?

What are personal loans?

A personal loan is pretty straightforward – you borrow a sum of money from a lender and make monthly repayments over an agreed period, usually between 1 and 7 years. Of course, lenders don’t offer this service for free, so you’ll also have to pay interest and possibly charges.

Unlike mortgages or secured loans, personal loans are not secured against an asset, such as your home, so it’s less likely your home will be repossessed if you fail to pay.

However, there are other consequences if you fail to pay – you’ll get a bad credit score, making it difficult for you to borrow money or get credit even for smaller things such as a mobile phone contract, and you could be taken to court to retrieve the money.

Is a loan right for me?

Consider your borrowing options

When you’re looking for credit, there are several options to consider:

• credit cards
• overdrafts
• secured loans
• remortgaging your home
• personal loans

Each of these borrowing options is suited to different goals and purposes. To help you decide if a personal loan is the right choice for your situation, ask yourself these key questions:

• Do you need to borrow between £1,000 to £50,000?
• Will it take you more than a year to repay?
• Do you prefer a fixed repayment schedule rather than a flexible one?
• Have you got a fairly good credit history?

If you’ve answered yes to some or all of these questions, a loan might be suitable. A loan might also be helpful to consolidate your debts if you have outstanding balances on one or more credit cards, depending on the interest rate you’re paying. A personal loan can give you a structured repayment plan and fixed repayment amount which can often save you money on interest payments.