About
personal loans
A Guide to Unsecured Personal Loans
Unsecured personal loans are offered by lending
institutions such as banks and building societies and are so called because the
lender requires no security for the debt. They are not available for speculative
purposes or business purposes. Depending on the individual lender some other
purposes may also be excluded, for example the purchase of timeshare property.
Below is a quick and easy guide to UK personal loans.
Choosing the right loan
Personal loans are available for a range of different
amounts and repayment terms. Depending on the amount and purpose of the loan,
you will be able to choose from a range of repayment periods. Larger loans such
as those over £10,000 can usually be taken over longer terms i.e. 7 to 10 years.
The minimum loan amount is typically £1,000 although some lenders do offer £500
and upwards. The maximum amount you can lend is £25,000, although this will vary
between lenders and products.
Need a loan over £25,000? If you’re a
homeowner you
can consider a secured loan.
The amount borrowed is subject to an interest charge,
and the interest rate applied is known as the Annual Percentage Rate (APR).
Generally, it is advisable to compare the APRs of different products as a means
of determining how competitive they really are. It is not unusual for lenders to
offer different APRs depending on the method of application e.g. applications by
telephone may receive a higher APR than those done online, so it’s well worth
shopping around for the best deal.
If you are looking for a low cost loan, comparing the
APR is a good place to start. Lenders do quote interest rates in different ways,
and it's worth familiarising yourself with these before you start:
- A fixed interest rate will stay the same throughout the term of the
loan, regardless of any changes in the bank base rate. This means your monthly
repayments should always stay the same, allowing you to budget accurately.
- A variable interest rate may rise and fall in line with any changes
to the bank base rate. This could result in your monthly repayments changing
during the term.
In addition:
- A typical interest rate is an indication of the rate you will be
offered as it is the rate that over 66% of successful applicants receive. The
exact rate offered to you will be dependent on the loan amount and term and on
an assessment of your personal circumstances.
- A set interest rate is offered to all successful applicants,
regardless of the risk they present and the loan amount and term.
Although lowest APR is one factor that contributes to
a ‘cheap’ loan, you should always pay attention to the small print as any
additional costs will be found there. Some lenders do apply an early settlement
charge (also known as a redemption penalty) if the debt is repaid in full before
the agreed end date. This can be up to 2 months interest so it pays to check
this out before you commit. If you think you'll clear the debt before the end of
the term then your best bet will probably be a loan with no early settlement
costs, even if the APR is slightly higher. Whatever you decide, you’ll need to
do your sums before you sign on the dotted line.
Personal loans are repayable on a monthly basis. If
there is a degree of flexibility then the lender may permit over-payments and
lump-sum payments, both of which allow you to clear the debt over a shorter time
period than first agreed. If your loan is a truly flexible product then you may
also be able to withdraw funds from the account on a rolling basis, providing
you stay within your credit limit. Lenders also offer repayment holidays or
payment breaks, allowing you to take a break from your monthly repayments either
at the start of the loan (known as 'deferred repayment') or at an agreed point
during the term. Interest will continue to accrue on the outstanding balance and
this may result in increased monthly payments so your debt is still repaid over
the term agreed at the outset.
Getting accepted for a
personal loan can sometimes
prove difficult if you’ve got bad credit, have changed addresses frequently,
have no previous credit history or are self-employed. There are lenders who can
help those who need 'bad credit' loans and those who have difficult personal
circumstances. The APR is likely to be higher than that offered by a standard
personal loan provider, but the chances of getting accepted are far greater.
If you’re a homeowner with ‘bad credit’ or difficult
personal circumstances it may be worth considering a
secured loan.
Personal loans are governed by the Consumer Credit Act
1974. The Act contains strict regulations about how money is lent and covers
unsecured loans up to £25,000 (these are known as 'regulated loans'). When
taking out a personal loan you will be asked to sign a credit agreement, and
you'll be bound by it's terms. As extra protection for both yourself and the
lender, insurance policies (known as
payment protection insurance) are available
and these will cover your repayments in the event of sickness, accident or
unemployment. In the event of your death your debt could even be repaid in full.
Although beneficial, these policies can be costly with both the cover and cost
varying between lenders. You should always check what a policy includes and
excludes, as this may affect your decision to take it out. Stand-alone policies
are available and these may prove better value than the policy offered by your
personal loan company.
How do I apply?
You can
apply online for your
secured personal loan. This
will ultimately save you time as it means you won't need to contact the personal
loan companies direct as we deal with many different lenders. We also hold
details of loans designed specifically for applicants with a poor credit history
or those who have difficult personal circumstances - whatever your circumstances
we can help you to find the right product.
Once your application has
been submitted to us our Sales Support Team will contact you to confirm
your application. If you completed our application form it will be passed to
your chosen lender in order that they may process it.
What happens next?
Your application will be processed quickly and a
decision communicated to you within a few days. Lenders use credit reference
agencies to obtain information about you as they provide a detailed analysis of
your financial position, in particular whether you have any bad credit such as
County Court Judgements, defaults or arrears, details of any existing credit
agreements or searches made by finance companies plus information relating to
the electoral roll. If you are refused a personal loan or wish to make enquiries
concerning your own credit file you can apply to the credit reference agencies
for a copy of your record.
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