General Information on Personal Loans

With a personal loan you can borrow money for as short a term as 6 months to as long as 10 or more years. How much you can borrow, the period of the loan and the interest rate are dependent on the whether the loan is secured or unsecured, your net income, credit rating and, sometimes, other personal circumstances. With most types of personal loans, regular monthly repayments have to be made.

Depending on the APR and the period before the loan must be paid off, an unsecured personal loan can be a cheaper or more suitable way of borrowing compared with overdrafts or credit cards. The key benefits of this type of loan are that you can borrow fairly large amounts for a relatively long period on a fixed repayment plan, without risking your home. The interest rates may be higher compared with loans which are secured, but the lender will not have any charge on your property. In general the more you borrow and the better your credit rating, the cheaper the loan should be. Repaying the loan is usually done on a regular monthly basis but if you decide on early repayments there are usually extra charges unless you have an agreement where you can make overpayments without penalty. If you do not keep up with your repayments, your credit rating can be affected; the lender can take legal action against you to recover the debt; your ability to borrow in the future can be more difficult.

With a secured loan your home is used as security for the loan and because the lender's risk is reduced the interest rate will usually be lower. With secured loans you can usually borrow over a longer period and have larger loans, but you must keep up repayments or you could lose your home. As an alternative to secured loans you could consider remortgaging your home.

If you want the flexibility of making more payments in some months and making less or no repayments in some months, then you could try a flexible loan. Flexible loans usually cost more and there will be restrictions on the flexibility, but it can be suitable for the self-employed or those with irregular income.

Finding the best deal means shopping around and comparing quotations. This can be time-consuming if you telephone around or go to the high street, and many people find that the best way is to check each lender's website individually rather than relying on a general comparison table where the rates may apply for specific circumstances only and where the figures may only be correct up to the last update of that rates table. It is becoming easier for you to make your own comparisons online with so many providers giving loan examples and quotes on their websites. There are many to choose from and interest rates can vary from about 5% to over 20% depending on the amount of the loan and your personal circumstances.

The Annual Percentage Rate (APR) of the loan provides you with a standard for comparing the loan from different lenders. It is calculated by the lender from the interest rate on the loan, the term and frequency of payment, and other charges like arranging the loan.

Other points to bear in mind with personal loans are arrangement or completion fees (if any), restrictions on the use of the loan (if any), payment protection plans (shop around if you need one), penalties for repaying more of the loan during the term or repaying all of the loan before the agreed term (usually, there is a charge if you pay off the loan before the end of the agreed lending period depending on your agreement), and whether interest is calculated annually, monthly or daily (this can significantly affect the amount repayable).