PERSONAL LOANS
What Is A Personal Loan?
A Personal Loan is borrowing a specific amount of money for an agreed period of time. Every month a set amount is paid back, and this will include any interest that comes with the loan. Personal Loans are also known as unsecured loans because there when you take out the loan you don’t have to secure the loan against something valuable that you own, such as your home. To find out more about Secured Loans Click here.
Personal Loans are usually fixed interest which means the repayment amounts on the loan wont change.
FAQ’s
Always take note of APR, length of the loan, repayment schedules and the terms & conditions of the loan. If your looking to repay the loan early make sure there are no penalties or fee’s for this.
Dont borrow more than you need as you will be paying interest on borrowed funds that arent being used.
In order for a lender to approve your application you will need to show your able to repay the loan. Normally lenders will asses:
- Your application details
- Information from your credit report
- Any data they already hold on you (e.g. if you’ve been a customer before)
Each company will have thier own criteria for who is eligible for a loan. Your credit report plays a huge part in this, the better your credit score the more likely you are to be accepted for the loan.
The interest rate you’re offered can also depend on how well you fit the lender’s criteria. Keep on top of your credit score and this will enable you to judge how likely a lender is to accept a loan application from you.
What Would You Use It For?
You can use a Personal Loan for most things. You normally don’t have to clarify what the loan is for. Typical reasons for Personal Loans are:
- A new car
- Education costs
- Home improvements
Obviously you can’t use a Personal Loan for anything illegal and it’s never ever a wise move to get a loan for anything that is high risk.
Debt Consolidation?
Debt consolidation is another reason for taking out a Personal Loan. By consolidating your debts you can get all of your repayments into a one off monthly payment rather than multiple amounts. This may make it easier to manage and also reduce the interest you’re paying.
You may also look to consolidate debts by using a 0% Balance Credit Card. This will allow you to transfer your credit card debts to one card, paying no interest on them for a set period.
The Interest
Interest is calculated as a percentage of the total amount you owe. This is usually charged on a monthly basis. So obviously the longer the loan duration the more interest you will have to pay. This means its vital to budget your income and expenditure to ensure you can afford the monthly payments.
For example, say you borrowed £10,000 at an interest rate of 5% over ten years. You’ll make monthly payments of £105.52, and pay a total of £2,662.82 interest over the entire term.
Now let’s say you have the same loan, except it’s for five years rather than ten. You’ll make larger monthly repayments of £188.20, but you’ll pay a smaller total of £1,292.24 interest overall.
| Loan Term | 10 Years | 5 Years |
|---|---|---|
| Amount Borrowed | £10,000 | £10,000 |
| Interest Rate | 5% | 5% |
| Monthly Payment | £105.52 | £188.20 |
| Total Interest Paid | £2662.82 | £1292.24 |
| Total Amount Paid | £12,662.82 | £11292.24 |
Remember when you compare loans, it’s helpful at their APR. This is the interest rate plus any additional fees for taking out the loan.