Personal Loans

This is a loan available from a bank, building society or other financial institution without security. You can be offered a loan anywhere from £500, in return for you agreeing to make regular repayments - usually by direct debit. However, you will need to apply for a secured loan for amounts greater than £25,000. Personal loans are available are repayable over a certain period of time, usually between 6 months and 10 years, with the lender preferring as long a term as possible.

Applying for a Personal Loan

Personal loans are offered to people with good credit records. The lenders will rely on their judgement of your credit worthiness to get their money back, so they will carry out detailed checks with credit agencies, on your credit card record and on your current bank account. If you have debt problems, you may not get a loan.

Interest

The interest you will be charged will be either fixed or variable on the amount borrowed. Usually the rate is fixed, and so will remain the same throughout the term of the loan. However, in the case of long-term loans, it may be variable, and so you should check this before you sign. You will probably be offered a lower rate of interest if you agree to a longer loan period - but this will prove more expensive in the long run than a short-term loan.

The interest charge is expressed as an APR (annual percentage rate), and will vary depending upon the amount of the loan, the term of the loan, and sometimes your credit rating.

The repayments are often 'front end loaded' - meaning that during the early years of the loan you will be paying large amounts of interest and very little of the actual capital. This will make a difference if you decide to pay the loan off early, as you may find that after making payments for a year, you will have only paid off a tiny amount of the loan itself.

Insurance

Most lenders will offer Payment Protection Insurance - an insurance that will cover your monthly loan repayments in the case of unemployment, accident, sickness or death. There are often different levels of insurance, so check the small print to ensure the cover provided is suitable for your needs. This insurance can end up being very expensive: on a five-year £10,000 loan, the repayment protection policy is likely to cost in the region of £40 a month - that's nearly £2,500 over the term of the loan!