Personal loans, also sometimes known as unsecured loans, are loans made by a lender on the basis of an individual, or individuals’, personal loan requirements and credit circumstances. There is no requirement to put up assets against which to secure a personal loan.
Personal Loans are often used for large expenditures such as buying a car, paying for home improvements or paying for a wedding. They are also commonly used as a way to consolidate other debt, such as credit card debt, into one monthly payment.
There are a number of advantages to a personal loan over other types of loan. These include:
- A personal loan will typically allow a higher level of borrowing than that available on a credit card.
- Personal loans usually offer lower interest rates than credit cards, particularly on larger balances.
- Monthly payments for personal loans are usually fixed, meaning that budgeting for repayments is easier.
- Extending the length of time over which repayments are made can reduce the monthly repayment amount.
– Using a personal loan to consolidate several debts into one can help with clarity on overall debt and ease of managing repayments.
- Personal loans are usually quicker to set up than loans secured on assets. This is because secured loans have significantly higher levels of administration and checks associated with setting them up.
There are also disadvantages to personal loans and, as with any type of borrowing, these should be considered carefully before making any commitment. These include:
- Personal loans may have higher interest rates than some other types of borrowing such as secured loans. This can be particularly true for smaller sums.
- Many lenders do not like to lend sums of less than £1,000 as a personal loan so there could be a temptation to borrow more than needed to overcome this.
- Whilst assets are not required to secure a personal loan, repayments must still be kept up. Depending on the loan, this could mean a commitment to making monthly payments over several years. Failing to keep up repayments could result in charges and a negative impact on your credit history.
As with anything financial, it makes sense to see what is available instead of just opting for the first product that you see. A starting point for carrying out a personal loans comparison could be your bank or building society, a chat with a friend or family member, or an internet search. However, all three of these approaches have drawbacks:
– Talking with your bank or building society about personal loans will likely only give you information about the loans they are able to offer you. This is not their fault. They are not in a position to give you information about other lenders. However, it does mean that anything they can offer will be limited.
– When talking to a friend or family member about how to compare personal loans, the advantage is that they will have your best interests at heart. However, unless they are a qualified, independent and up-to-date financial advisor, it is likely they simply will not have the breadth of knowledge needed to give you the information you need.
– Internet searches are great. However, when it comes to carrying out a personal loans comparison, it can be difficult to determine who is independent and who is tied. If a lender is tied, they will only be in a position to offer a limited choice. This might be suitable, but without comparing against the rest of the market, it can be difficult to tell.
We believe in making sure all our customers get the best deal. As we are completely impartial and independent, we are focused on what is best for your needs and not limited to only a small segment of the potential loans available. All we need is for you to provide a few details and our comparison technology will do the hard work to find quotes that match your requirements.
When you compare personal loans, there are a number of things to take into consideration. These include:
– The interest rate. This might sound obvious but, unfortunately, it can sometimes not be as simple as it should be. Often you will see loans being advertised with a representative APR. The APR is the annual percentage rate of the loan, but if an advert says it is representative, that means that there is no guarantee that you will be offered that rate. This is why getting a quote is so important as you will know exactly what rate will apply.
– Fixed or Variable. Many personal loans are fixed rate. This means that you would pay the same repayment amount each month. However, variable rate personal loans are also available. This means that the amount of the repayment could vary each month depending upon the overriding interest rate applied by the lender. It could mean you pay less, but it could also mean an increase in how much is payable each month.
– Arrangement fees. Arrangement fees will generally make a loan more expensive, although sometimes a loan with an arrangement fee may suit your overall requirements best. Arrangement fees may be included in the APR.
Everyone’s circumstances are different. Considerations will include how much you want to borrow, how much you can afford to repay, other loans that you may currently hold, your income levels and type, previous credit history and the purpose of the loan.
It makes sense to use an independent website that specialises in loans and lending to compare personal loans available. The right lender for your friend may not offer you the best options. Equally, a lender which offered the right deal for you a few months ago may not be at the top of the list now.