What is a Personal Loan?
There are many different types of personal loan. The types you may be offered are often named after the reason for the loan, and also your financial situation and credit history. This will also affect the amount you can borrow, interest rates and length of payback time.
Personal loans: a summary
- Unsecured or secured against your assets
- Usually fixed rates but can be variable
- Interest rates affected by credit history
In general, a personal loan comes in the form of a lump sum, which you then pay back in instalments, over an agreed time, with interest.
Personal loans are often popular due to the choice they can offer a borrower. You can often negotiate payback periods and borrow more money than would be possible using other methods of finance.
How Much Can I Borrow with a Personal Loan?
This very much depends upon your personal circumstances and credit rating. In general, you can often borrow up to £25,000 if the loan is unsecured. Any more than that and a lender is likely to require the loan being secured, which means putting up personal assets – such as your home – to secure the loan.
Requirements for personal loans differ wildly, depending on the individual and the reasons for a loan. A home improvement loan is likely to be for a larger amount than a payday loan for example. This is because the latter is designed purely for amounts payable by a single pay packet, the former for considerably larger amounts.
Your credit rating is hugely important when it comes to personal loans. It will affect how much you can borrow, as well as interest rates and the amount of payback time you will be allowed.
Check your credit rating, as a first point of call. You may be able to improve your rating, and so improve the personal loan choices you can be offered. When you do apply, find out up front whether your credit check will be a full check or a soft check – the former can affect your credit rating.
Use the Guru’s MoneyMatcher to seek out a loan and we will conjure up a comparison table where your credit rating won’t be affected.
Fees for Personal Loans
Every type of personal loan comes with its own set of fees, so be sure to check these when comparing your options. Fees can include arrangement fees and early repayment fees. Certain types of personal secured loan may include property valuation and legal fees.
Advertised Rates of Interest
When comparing loans, be aware that advertised annual percentage rates (APRs) may be different to those you will be offered. Lenders need to show the rate typically given to 51% of applicants. If you apply and are accepted for the loan, you could fall into the 49% who do not qualify for the rate shown.
You can therefore end up paying more than the amount advertised, and you were expecting. Be prepared for this when applying for a personal loan, and if given a different APR from that you were expecting, remember to recalculate before agreeing outright.