At first glance, a loan is an easily explained product; you borrow an agreed amount and you pay it back, plus interest, over an agreed period of time. But not all loans are suitable for everyone, so it is important to shop around to find the best one for you.
Both the amount you can borrow and the interest rate will depend on your circumstances and credit score.
There are a number of loan options available, some of which may be more suitable to your needs, which include:
The amount of money you can borrow will depend on your circumstances and any existing debt you have. If you have credit facilities already available to you that you aren’t using, such as an overdraft or credit card, these can be taken into account too. Lenders want to be sure you won’t find yourself in unaffordable debt or unable to repay your loan.
Generally, the maximum you could borrow with an unsecured loan is £25,000. Any higher than that and lenders are likely to require the loan be “secured” against something, most commonly your house.
APR stands for annual percentage rate; this reflects the annual cost of borrowing.
A lender’s advertised rate, or their RAPR (representative annual percentage rate), only has to be offered to 51% of successful applicants, therefore you may not be eligible for this rate. You could be charged higher interests rates or your application may be rejected entirely. This is dependent on you credit score, your income and any outgoings you have. They may also use statistical data to see how borrowers in similar financial positions have behaved.
The APR attached to larger loans tend to be lower than that of smaller loans. You are likely to pay a higher rate of interest on a debt of just a couple of thousand pounds than you would on a debt of £7,000 or more. Because larger loans typically have lower APRs, you may be able to save money by consolidating your debt in order to get a better overall rate.
Be aware that some lenders charge upfront fees and possibly early redemption charges if you want to repay the debt early. Make sure understand what additional costs, if any, exist before you arrange the loan.