What Is A Personal Loan?

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Borrowing a lump sum from a Lender is often referred to as a personal loan. The Lender could be a bank, building society or any financial assistance provider. The amount is lent to you with the promise that you will pay it back within a set period of time, which is generally between 1 month to ten years. The loan is paid back with interest.

Types of Loans

A Personal loan is mainly divided into two major types a secured loan or an unsecured loan.

As its name suggests a secured loan is linked to property, usually a house, and the property is used for security on the loan. A secured loan, therefore, is also known as a homeowner loan. Car loans are another example of secured loans, as the Lender uses the vehicle you are purchasing as the security for the loan.

A unsecured loan, is as it’s name suggests, not secured by having a claim to an asset such as property. If you fail to pay back the secured loan on time, the Lender has the legal right to claim your property ownership and to sell the property to pay off your debt.

Unsecured loans are mostly available with the loan amount ranging from £500 to £25,000, although some Lenders cap borrowing at £15,000. Smaller loans are easily available, especially if the amount that you need to borrow runs into hundreds of pounds rather thousands.

If you would like to borrow more than £25,000, you will need to opt for a secured loan and the Lender will ask you to tie an asset to your loan.

Interest Rates

The amount you pay in interest every year is known as the APR (i.e. Annual Percentage Rate). Usually, you’ll see an “example APR” cited in most loan ads, you may get a different rate of interest when you apply for the loan.

The typical APR is based on what 66% of a Lenders loan applicants have been offered.

Certain factors, like how much you are borrowing, the length of time you want to borrow for and your personal and economic financial position are factors in the interest rate that you will be offered. Unless you pick a Lender with a “one-size-fits-all” interest rate.

Quick And Easier

There are two main types of interest fixed and variable. As the name suggests you will have to pay a fixed monthly repayment for a loan with a fixed interest rate.

A variable rate often works in line with the Bank of England base rate. This could be both good and bad for you, if the rate is low, you’ll have to pay less, on the contrary if the rate goes up so will your repayment amount.

Repaying Your Loan

Monthly instalments is the most common way of repaying most loans, with a direct debit for a specific period, which is agreed between the borrower and the Lender. The Lender will work out for for you how much you will need to pay each month.

For most loans, the repayment period is fixed and you will have to pay a redemption penalty, e.g. 2 months’ interest if you want to repay your loan early. It is advised to try to repay a loan in as short a time as possible as the longer the repayment period the more interest you will have to pay.

A new kind of loan, flexible loans, are becoming popular as they allow you to borrow and repay at will, but they often come with considerably higher interest rates.

If you miss a payment, a default will be registered on your credit file by the Lender. Most Lenders are not too concerned by one or two missed payments, but on missing several payments you will find it difficult to get credit elsewhere.

Where to Get a Loan

There are plenty of companies out there that are offering loans these include banks, building societies, credit unions, and specialist loan companies. You may even be able to get loans from individual Lenders and those who work only on the internet or by telephone.

It’s common knowledge that better rates are offered by specialists Lenders and online Lenders than the high street Banks. In fact it’s also a fact that Banks are incredibly reluctant to lend even to people or businesses with good credit. The best option is to compare the market thoroughly and investigate all the Lenders to find the best possible deal for you and your particular circumstances.

Doorstep Lenders offer the most expensive loans, they offer very low sums of less than £50 which the borrower urgently requires to meet financial commitments. Repayments are made weekly and their APRs are generally extremely high i.e. 900%. Therefore, it is highly advised to avoid this type of loan if at all possible.

Another option for borrowers are the credit unions as they cannot charge more than 2% a month with an APR of 26.8% and most of them charge only 1% a month (i.e. 12.7% APR).

You will mostly find credit unions offering unsecured loans for up to 5 years and secured loans for up to 10 years.

Getting Into difficulty

Sometimes due to the unforeseen circumstances, you may find it difficult to meet your monthly repayment commitments. In such cases it is important not to ignore the letters you will get from your Lender.

The best thing to do is to contact your Lender right away and explain your situation. In fact, some Lenders may even offer you help, freeze the loan temporarily or expand the payback period.

Your Lender’s ultimate goal is to get back their money, they will work with you and adjust your repayment plan or amount to help you rather than taking an action against you.

It is extremely important, if you have a secured loan and you run in to repayment difficulties, to reach out to your Lender. If you default your house, or any other valuable asset you have tied to the loan, will be at risk of being claimed by the Lender to cover your debt.

Quick & Easy Loans search 95% of the UK loan market, so you don’t have to, to find the best and most appropriate personal loans for you and your particular circumstances. We offer a quick application with no obligation whether you have good or bad credit we can help. Get your Quick & Easy personal loan now by completing the short form on the right.