This type of loan is finance borrowed from the bank and is just one of the many types of additional finance available. Personal loans are money given by the bank for whatever you choose to use it for.
However, the qualifying requirements are tough so you’ll need to have a good application to present to the bank. Wanting to buy a new pair of shoes or go on a mini break to France might not cut it!
If taking out a personal loan is something you’re interested in here are the top four things you need to know:
Your loan is unsecured
Personal loans are unsecured meaning you don’t need to provide an asset as collateral against the amount you borrow. That means that if you fail to make repayments the lender can’t take your property to pay the loan.
The loan being unsecured is the reason that they are more difficult to get and lenders will use other forms of collection action if you do not repay your loan. This can include filing a lawsuit or sending the bailiffs to make the collection for them.
You will be borrowing a fixed amount
Personal loans usually let you borrow anywhere between £1000 to £50,000 depending on your application and credit rating. Obviously the better your credit rating the larger amount of money you will be able to borrow. You will also stand a better chance of your loan application being approved for large amounts of money if you already have a relationship with the bank you wish to borrow from.
The interest rates are fixed
As well as borrowing a fixed amount the interest rates will also be fixed for the lifetime of the loan. This means that the interest rate you agree on when you take the loan out will be the interest rate at the end of the loan. Not only will a good credit rating allow you to borrow more money but it will also reduce your interest rate.
The repayment date is fixed
When you sign up for the loan you will be told the date, or dates, that you are expected to make repayments. Loan periods are stated in months and the longer the loan period the lower your monthly repayments will be.
However, the longer the loan period the more interest you will pay so you may not save money by spreading your repayments over a longer period of time. You may also find yourself on the receiving end of penalties if you pay your loan back early.
How do I know the loan is right for me?
The bottom line when it comes to loans is to do your research and a good alternative to spending hours researching loans yourself is to get someone else to do it. Using financial services for example Loans Direct or Norton Finance mean that you’ll know which loan is right for you without having to do the work yourself.
About the Author: Harry Price writes on all aspects of Finance, Tax and legal issues from his home in Bordon, Hampshire