Personal loans
Personal loans, or unsecured loans, are often the cheapest way to borrow money for expensive purchases and home improvements.
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What are personal loans?
Personal loans are a way of borrowing a lump sum of money for a personal use.
Repay through fixed monthly repayments with interest over a set period of time, usually between one and seven years.
Often these are known as unsecured personal loans, this is because these loans aren't secured by an asset or property. So if you’re unable to repay the loan, the lender can't repossess the property to recoup the loan.
Paying back an unsecured loan is also often cheaper than borrowing the same amount of money using your bank overdraft facility, or on a credit card.
A personal loan can help spread the cost over a longer period of time than a credit card, making it more manageable to pay back.
Credit checks
What is a credit check?
When you apply for a loan, lenders will run a credit check. This is when lenders request your credit file form Credit Rating Agencies (CRAs) to assess your eligibility for a loan.
Your credit check will show a record of the open credit cards, loans and agreements you've taken out.
Your credit file includes information on how you’ve managed debt in the past. It records if you have missed any payments, how many times you’ve applied for credit and other details.
How often should you check your credit?
If you're preparing to apply for a loan or apply for a mortgage, you might find yourself regularly checking your credit score to see if anything has changed.
It's a good idea to check on a regular basis, and look out for any inconstancies.
Common errors include : wrong address and misspelled name . If you notice an error on your report, contact the credit reporting company as soon as you can for them to rectify the mistake.
Is a personal loan right for me?
Personal loans pay out in fixed lump sums, which you can use according to your needs.
For example:
Book a family holiday,
Fund your dream wedding
Consolidate your debt
Buy a new car
Home improvements - new bathroom or kitchen
A real benefit of a personal loan is that if approved, you can use the money for anything you want - you don't have to have any purchases or payment approved by the lender.
When taking out a personal loan think about the years of financial responsibility that comes with it. You might find it possible to save up the money instead.
How much can you borrow using a personal loan?
Typically, unsecured personal loans are for borrowing anywhere from £1,000 to £50,000.
When you apply for a loan, how much you are able to borrow will depend on your credit rating, which lenders will use to help them work out how likely you are to pay the loan back.
A good credit rating means you can borrow more, and will be offered the best personal loan rates. You can use our personal loan calculator to check the current rates.
How much will a personal loan cost me?
The cost to you of an unsecured personal loan is known as the APR, or annual percentage rate. This is the number you should look out for when using a loan calculator and loan comparisons to find the best personal loans that suit your needs. You can read more about how APR works here.
Included in the APR is the interest rate you will pay for taking out the personal loan, and any additional fees the lender will charge. These costs will be included in your monthly repayments when you start paying back the loan.
A higher APR means the personal loan is more expensive for you. When comparing loans, use the APR number as a guide to get the cheapest loans by choosing a low APR.
Some personal loans have variable interest rates, meaning they can cost you more or less month to month. If you're worried about being able to afford higher repayments, or want the certainty of a fixed repayment plan, you should avoid this type of loan.
Unsecured personal loan lenders will also consider other factors such as, your income, and how much other debt you have, to assess whether you are eligible for a loan.
How do I find the best personal loans?
Here are some things you need to consider when comparing loans:
Amount you want to borrow: If you can’t borrow the amount you need to cover your needs, it doesn’t matter how cheap a deal you get.
How long you need to repay: How long a loan term you choose will affect what your monthly payments will be. It’s important to pick a term long enough to keep the monthly payments affordable. A longer term means lower monthly payments, but it also means you’ll pay more in interest overall.
Interest rate: This is the cost of borrowing money. The interest rate you are offered will depend on your financial circumstances such as, your income, debt, and credit score.
Fees: Some lenders often charge extra fees such as, arrangement fees or early repayment fees. By running a personal loan comparison you can find lenders who may not charge these fees.
It's always a good idea to run a personal loan comparison and compare loans from as many lenders as you can. Remember that the cheapest personal loans may not always cover your needs.