About Personal Loans

Introduction
The amount you can borrow with a personal loan
The repayment period
Interest
Personal loan or remortgage?
Payment protection
Credit scoring

Introduction

A personal loan is a lump sum which you borrow from a bank, building society or another lender and is for you to spend as you wish. Many people use them to pay for a car, a dream holiday, home improvements, or even to pay off credit card bills, allowing you to spread the repayments over a longer time at a lower interest rate.

Personal loans are unsecured, they do not require any form of security.

A personal loan could be the right option for you if you are borrowing money for between 1 and 5 years and particularly if you have a number of debts which you’re looking to consolidate into one loan.

The amount you can borrow with a personal loan

Generally you can borrow up to £15,000 with an unsecured loan, but with some UK lenders you can go as high as £25,000. However it is important to remember you have to be able to afford the repayments.

The repayment period

Some lenders will lend you money for as little as six months, although a year is more common. The maximum repayment length is usually seven years, but some firms will lend for a ten year period.

Personal loans are ideal for people who want to repay something over a few years, if you only need the money for a few months, a credit card might be a better solution.

Interest

The amount you borrow with a personal loan is subject to an interest charge, which will be quoted as a percentage. This rate is known as the Annual Percentage Rate (APR).

A fixed rate is set at one interest rate throughout the life of your loan so you have the assurance that your monthly repayments will not increase or go down. A variable interest rate will depend on market changes such as the Bank of England base rate changes, which means that the monthly payments could go up as well as down.

The interest rates for personal loans are normally fixed for the duration of the loan, which means you know exactly how much you will repay each month.

Generally, the interest rate will depend on how much you borrow. The interest rate is normally lower for a large loan than for a small loan amount.

Most lenders will require you take out a direct debit for the repayments.

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Personal loan or remortgage?

If you already have a mortgage it may be cheaper to add to the value of your mortgage, rather than taking out a personal loan. By remortgaging you can add to the total sum of the mortgage and thereby have access to additional finance without incurring the higher interest rate of a personal loan.

However you need to take into consideration any redemption penalties on your mortgage. You may find the cost of remortgaging to greater than the cost of taking out a personal loan.

Payment Protection

Payment protection schemes cover you in the event that you are unable to pay off your loan due to accident, illness or redundancy. The payment protection premiums will be added to your monthly repayment.

Cover can vary and you should carefully check what the particular payment protection policy or scheme covers.

You should consider carefully whether you need payment protection. Some lenders make buying this insurance compulsory unless you are prepared to pay a higher interest rate.

Lenders must now show the whole cost including the payment protection in their APR. This makes a comparison based on the interest rate much easier and gives you some idea of the real cost of the loan including protection.

Credit scoring

When you apply for a loan, lenders want to make sure that you are a good risk. To do this they will check your credit record with credit reference agencies. A poor credit record won't necessarily prevent you from getting a loan, but you will probably have to pay a higher interest rate. You may find it harder to get a loan if you are self employed or are on a short term contract.

Our service offers an initial check of your circumstances, to see which loans you are likely to be eligible for.

When you go on to apply with the lender directly they will perform a full credit check on you. If you are refused a personal loan, or wish to make enquiries concerning your personal credit file, you can apply to the credit reference agency for a copy of your credit file. You should ask the lender which agency they use and for the contact details of this agency.

The lender is not required to tell you why they turned you down. Reasons may include any County Court Judgements, previously declined applications for credit, defaults on payments, mortgage arrears, repossession of property or cancellation of a credit card by the credit card company.

This website provides background information only and accepts no responsibility or liability for any loss or damage incurred as a result of relying on information contained on this website.

If you have a specific problem you are advised to consult an