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Personal loans

Personal Loans Explained

You may take out personal loans for many reasons. You might want to—

  • Purchase a new car

  • Finance a dream holiday

  • Consolidate debts

Personal loans are popular as there are no restrictions on how the money is spent. As long as you do not have bad credit, you should be able to obtain a personal loan from a bank or online loan provider.  

There are two types of personal loans available—secured and unsecured.

You may be able to borrow a large sum of money at a reasonable interest rate on a secured loan. This is based on the fact that you would have had to put up a substantial asset, such as your home, against the loan.

To get an unsecured loan, you are not required to provide any form of collateral. Unsecured loans usually carry a higher interest rate. You must have an excellent credit history to get an unsecured loan.

Here are some tips about personal loans:

  • To protect yourself against bank base rate changes, take out a fixed instead of a variable interest rate.

  • If you only need a small sum of money, it might be better to use a credit card or your bank overdraft, as you will pay out less in interest. However, if you need a larger sum, an unsecured personal loan can be a good option.

  • Remember to shop around and compare APRs on personal loans. Don’t forget that some loans might offer a lower interest rate, but at a higher risk.

  • Generally, online applications for personal loans receive a more favorable APR than telephone applications.

  • Pay attention to the small print on personal loan applications to check if there are any hidden costs or special conditions.

  • Beware of early settlement charges or redemption penalties. If appropriate, choose a penalty-free personal loan, even if the APR is higher.

  • Taking out payment protection insurance on your personal loan will help you if you become unemployed due to illness or accident. However, you may not be able to claim for up to 60 days after unemployment or illness.

  • Be particularly careful if you are self-employed, or on short-term working contracts; you may find that different terms apply for you.

  • If you take a repayment holiday on your personal loan, remember that the interest will continue to accrue on the outstanding balance, resulting in increased monthly payments.

Bad Credit and Personal Loans

If you are unable to repay your loan, act promptly and inform your lender. You can arrange an alternative repayment schedule, although you may be penalized for using this facility. If you start missing your monthly repayments, this will ultimately affect your credit record. A bad credit history can stay with you for life and can be impossible to eradicate.

It is standard practice for loan providers to check your credit record with a credit reference agency before approving your application for an unsecured personal loan. A bad credit record will not necessarily prevent you from securing a personal loan, but you may have to pay a higher interest rate. If you believe that your bad credit record is inaccurate, you can formally investigate this with the credit reference agencies involved.

Compare the best personal loans

 
 
 
 
 
 
 
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