The Lowdown on Personal Loans
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There can be numerous reasons to borrow additional money by taking out a loan: the consolidation of many debts, home renovations, education fees or any additional requirement. Taking a loan can be an effective method of creating extra funds but, as with any form of borrowing, it is worth researching and keeping one or two things in mind.
Personal loans are unsecured loans that are produced for borrowers who want to borrow up to £25,000 over a set term. This means that the lender has not secured their investment against any pre-existing residence or shares that the borrower may have. Seeing as this is a risk for the loan company, it does mean that the rates of payment are likely to be slightly higher than on a secure loan, reflecting the nature of the gamble. As they are designed to be paid off over a fixed term, a few firms place fines on those who try to pay off the personal loans early, typically in the form of a large, accumulated interest bill. In this situation, it may be worth considering a flexible loan, where such charges do not apply.
Borrowers unsure of how much they will need to loan now have the option
of taking out a flexible loan meaning that rather than borrowing more
than might be necessary for, say, home improvements just in case costs
escalate they can borrow exactly the amount needed. Alliance and Leicester
offer a top up option on their unsecured
loans so existing customers can simply update their current arrangement
whilst maintaining the same monthly repayment rate.
These loans are agreed at a fixed rate, signalling that they will be assessed
on the existing rate of interest and that will not change over the term
of the loan itself, as the repayments are made monthly, the rate of interest
paid will lessen accordingly as it is calculated on the monies that are
owed. Because of the risk involved, a borrower's credit rating can impact
the price of repayments.
A credit history rating is worked out using a mathematical formula and by comparing the spending and repayment habits of consumers to see how much gamble is involved in loaning to an individual. A good history will generate a good credit score, and vice versa. Those with bad credit scores can expect to pay higher rates of interest where repayments are concerned, but it is not continually feasible to find out what that rate is until after application for a personal loan.
It is preferable for the consumer to take on a smaller loan that can be paid off as swiftly as possible. A huge loan taken out during a longer period of time may keep the cost of the repayments down but the actual amount of interest paid back over this period will be more expensive than if the consumer were to borrow the same amount over a shorter term. Those with existing loans can be tempted to change their cover to a firm offering cheaper rates of interest.
Yet again, this is worth researching, as there can be penalties incurred
for leaving a lender that, when taken into account with the new, lower
fees, can make the borrower no better off than before. It would also be
wise to make use of an online loan calculator to get a better idea of
the propositions scale. You can find calculators on loan providers websites
(on the Asda
personal loans page for instance) or on loans
comparison sites like Motley Fool or uSwitch.
