What is a Personal Loan?
Personal loans are an unsecured form of credit; you might have also heard them referred to as 'unsecured loans' before. What that means is that you don't require any collateral when you take out your loan.
With personal loans, you can expect fixed rates from most lenders, which is extremely helpful if you need to budget efficiently from month to month, as you'll know what your monthly repayments will be.
Dependant on your lender, affordability and circumstances, you could be allowed to borrowing anything within the vicinity of £1,000 to £50,000 to help you cover the costs of whatever you may need the credit for.
What are the main uses of Personal Loans?
Some of the most popular reasons for taking out personal loans include the following:
- Home and car repairs
- Wedding expenses
- Emergency medical bills
- Purchasing a new car
- Consolidating debts
Pros and Cons
- Personal loan lenders usually fix their rates, so you know what you can expect to be paying back.
- Lenders will usually fix their interest rates as well, although this is not always the case and you may have to double check to see if your lender offers this.
- You'll be able to borrow more than you would even if you maxed out your credit cards.
- You can use a personal loan to consolidate your other debts which can work out a lot cheaper and more accessible than having multiple bills to pay.
- You have a 14 cooling off period in which you can opt out of the loan if you wish. You will only be charged the amount of interest for the period you had the credit.
- They can tend to have higher rates of interest.
- The more significant the amount you borrow, the less interest is, so you could be tempted to borrow more money than you need, purely for a lower amount of interest.
- A lender is unlikely to lend you less than £1,000 for a period of 12 months.
How to ensure you get the best deal
- Always compare and weigh up all your different options and shop around. You can use comparison websites, the APR's advertised on lenders websites to make comparisons.
- Calculate how much you can afford to pay back each month to make sure you can afford the repayments and additional fees and interest. You can use online loan calculators to help you work out what you can afford to borrow and payback. Money Super Market has a free to use online calculator tool for you to utilise.
- Make sure you're likely to be accepted for a loan before you apply. You can do this a few ways; you can ask lenders for a quotation search, in which they will tell you if you're likely to be accepted on the limited information they can find on you. You could also check lender's eligibility criteria to see if you meet all their requirements, or alternatively, you could use an eligibility checker such as the one on Money Saving Expert. This way you can find out if you're likely to be accepted without it being noted on your credit file.
Things to look out for
- Be aware that the APR on the lender's website isn't always what you'll be offered. If you have adverse credit, then it's more than likely you will receive an APR that's higher than their advertised rate.
- Think carefully if you wish to get Payment Protection Insurance, although it has had a bad reputation in the past, it can be helpful in some circumstances. However, if you're looking at PPI for a short-term loan, you may want to reconsider.
- Always read the loan agreement and the terms and conditions to ensure you are fully aware of everything you agree to.
- If you're already struggling with existing debt, a personal loan isn't for you. Get in touch with a credit advisor or alternatively go to Money Advice Service for debt advice.
What is a Long term Loan?
Long term loans are a form of credit that is paid off over a long-term period of time, as their names suggest. Generally, most long-term loans are paid back within ten years, although dependant on circumstances some can last longer. With Long-term loans you have the choice of whether you wish to have a secured or unsecured long-term loan. What this means is that if you have assets, you can decide whether you would like to use them as collateral to enable you to borrow more money. However, if you wish to do this, you must ensure you will be able to afford to pay the loan back. How much you can borrow will also be dependent on your affordability, lender, credit score and circumstances.
What are the main uses of Long term loans?
- Long term financial problems.
- Debt consolidation.
- Wedding expenses.
- Special Holidays.
- Starting your own business.
Pros and Cons
- The versatility of long term loans means that they can help in such a wide variety of needs and problems, you can even long term loans for multiple purposes.
- They're a lot quicker and easier than applying for traditional forms of finance, such as bank loans, as you'll usually be able to hear back from a lender within 24 hours, with some lender even replying in just minutes.
- You won't need to fill out loads of paperwork as most lenders allow you to apply online and will get in contact with you if they need any additional information.
- You may have to pay a higher rate of interest if you have adverse credit, this is how a lender will eliminate any risk of lending you money.
- It's for the long-term so you'll have to ensure that you will be able to make the repayments for years to come, ensuring that your circumstances are unlikely to change. If you are not able to do this, your lender is able to take you to court or seize your assets (if your loan was secured) in order to cover the costs of the repayments.
- Additional fees can be high, if you miss a repayment then you could be facing a hefty late penalty fee in addition to your loan repayments.
Things to look out for
- Always check that your lender is regulated by the FCA, check the lenders website or the FCA register to see if the company is regulated.
- Be aware that making multiple applications to multiple lenders will make a mark on credit file, especially if you're rejected. This can be a warning sign to most lenders who will be cautious about offering you credit as you may appear untrustworthy.
- Always do your research into the company, ensure that they're reputable and that they provide an excellent standard of customer service. You can look into this by using reputable reviewing websites such as TrustPilot.
- Remember that you may not be offered the rate of APR that is advertised on the lenders website, especially if you have bad credit. Although you do have a good chance as in order for a company to advertise their APR 66% of their customers must be approved at that rate.