Are Personal Loans A Good Form of Borrowing
If need access to money that you want to make repayments on every month then a personal loan is ideal. Before you borrow, we have some information that you should think about
Personal Loans – What Are They?
A personal loan is a sum of money that is given to you from a bank or other form of a lender, and you make repayments each month to pay the loan amount off. These types of loans are call unsecured loans as they are not secured against assets you own like your home.
The Benefits of Personal Loans
- Your repayment amounts are fixed, this means it will be the same amount each month until the loan is repaid allow you to budget easier.
- You have the ability to choose how long you would like to repay the loader. Remember the longer you take to repay the more it will cost due to increased interest charges.
- You can consolidate multiple debts into one single payment. This can help you to reduce your monthly outgoings and make it easier to manage your money.
- You will be able to borrow more than you can with a credit card.
- You can repay your loan quicker often without a charge but check with the lender before taking out if you think this may be the case
- The interest that you have to pay back is fixed and added to the monthly repayment.
The Cons of Personal Loans
- Some loans particularly older ones have an early settlement charge if you want to clear your loan.
- Usually, personal loans have higher amount of interest than typical forms of borrowing and its typically the case if you want to borrow small amounts, for example, £1,000.
- The interest rate on your loan may reduce which means you may be tempted to increase the amount you borrow with a new bigger loan than actually need.
The Cooling-off Period?
The cooling off period is a time in which you can take a loan and cancel it. This is a 14 day period from then your loan was accepted, and the agreement has been signed. If You do cancel, you have 30 days to repay the balance in full plus any interested due.
What To Look Out For?
The APR shown for the loan may not the rate you get. This value is offered as the lower amount for those with excellent credit histories. By law, lenders have to offer this low value to just 51% of people they lend to.
If your loan is accepted, but your credit rating is low, then you probably won’t be charged the lower rate. Before you sign an agreement, the lender will need to show you the APR you are getting and the total amount payable
Often personal loans will have a variable interest rate, which means the rate could go up or down. If think you are going to be stretched with the initial repayment figure you should avoid this type of loan.
Keep an eye out for arrangement fees. This will make the personal loan cost more. When making comparisons make sure you factor this in to work out how much the loan will cost you for the duration.
If you are already having problems paying your bills or debts, then it’s not advised to add more debt by taking out a personal loan.
Getting the best Deal Possible
- Try to get the lowest rate possible from your bank or building society
- Look at comparisons sites to find the best deal. Look for the cheapest APRs but remember this value may change once you start the application process.
- Think about peer to peer borrowing. If you have a good credit history, this may appeal to you as they have lower interest rates and work better for a smaller amount. Most comparison sites will list theses in the results table
What are Secured personal loans
If you own your home, then you can get what’s called a secured personal loan. This means your home will be secured against your personal loan.
This is a riskier option as it means if you cannot make the repayments the lender can sell your home to cover the debt.