Personal loans
At some point in their life, most people want access to extra money that they can pay back later. Here's how to handle a loan properly.
It is a way of borrowing money from a bank or building society or other financial service. As with all forms of credit you must be over 18 before you apply for a loan.
How much can I borrow?
Up to £15,000 depending on the provider, circumstances and your credit rating. If you secure a loan against property the figure rises to £50,000. Interest rates range dramatically (8 - 20%) so shop around for a good deal.
How long can I repay over?
Six months to 10 years, secured loans allow up to 25 years.
Who can get a loan?
Most loans require you to:
- Be resident or ordinarily resident in the UK;
- Have a good credit record. All lenders will credit score you to see if they feel you are able to repay the money they loan you. To find out more on credit scoring and how to make your score a good one, see this article;
- Receive a regular income.
Some may ask for a deposit and also charge a set-up or administrative fee.
TYPES OF LOANS:
- Secured loans: A secured loan gives the lender the security of knowing that if you fall behind on repayments they can claim the money back by repossessing an asset that you have secured the loan against. The most common way of securing a loan is to take out a mortgage on your property.
How much can I borrow? Up to 125% of the value of the assets you are securing the loan against.
Interest rate: This is often cheaper because the lender is not worried if you can't make repayments.
Pay back time: Up to 25 years depending on the assets.
Problems: You could lose your home; - Unsecured personal loans: This is just a bank loan, it isn't secured to any of your possessions. It is good if you need to pay for a large item such as a car or a holiday.
How much can I borrow? Most lenders will offer you up to 15,000 pounds. Interest rate: Variable depending on how much you borrow and over what period of time you agree to pay back the loan.
Pay back time: 12 - 96 months. The longer your repayment time, the more interest you pay because you have the loan for longer. Some banks offer you the chance to combine all your financial commitments into one loan with a fixed interest rate so that you can pay your debts off gradually by making one payment each month.
Problems: If you can't make repayments the bank can blacklist you, which could make it hard for you to get credit in the future; - Student loans: As a university student you are able to get low interest loans to help you get by while you are studying. These loans are partly means tested, and eventually have to be repaid in full. The loans are run by the Student Loans Company, but you start by contacting your Local Education Authority;
- Career development loans: This is simply a deferred repayment bank loan to help you develop your career through education and/or training. You can borrow anything between £300 and £8,000 to help you fund up to two years of learning plus (if relevant) up to one year's practical work experience where it forms part of the course. For more information click here;
- Car loans: Car loans tend to be deferred repayment bank loans that allow you to buy your car with affordable monthly payments. These unsecured loans usually allow you to defer payment on up to 60% of the loan value, meaning you can borrow up to £20,000 for 4 years.
Things to consider:
- Debt consolidation: If you have a lot of separate debts you can bring them all together under the umbrella of one personal loan. This makes repayments more manageable and should cut the costs of the interest you are being charged. Not all of these loans are good value;
- Payment protection: A lot of banks and building societies will offer you payment protection with your loan. For a small monthly fee this ensures that your repayments will be paid if you find that you are made unemployed, are sick or have an accident. In most cases if you die your loan will be paid in full for you;
- Loan sharks: Be very careful when you choose a lender. Make sure you use a reputable company, as some of the more unscrupulous lenders can often charge very high rates of interest that make it difficult to pay the money back. Check what you are committing yourself to before you sign any contracts.
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