If you find yourself in a position where you need to access a lump sum of money throughout a fixed period of time, then a personal loan could be the best way for you to get your hands on the finances that you need. Unsecured personal loans are typically the cheapest option available for those in search of a way to borrow money, and you can usually borrow more with personal loans than you would be able to achieve by dipping into your authorized overdraft in your current account.
However, before you consider taking out a personal loan of any kind, it’s important to make sure that you fully understand how these loans work, what you should be watching out for in order to keep yourself and your finances safe, and how they compare with secured lending options.
How Much Does a Personal Loan Cost?
A personal loan is often a good way to borrow if you need to access a larger amount of cash. In general, loans are typically cheaper the more you want to borrow, up to a maximum limit of around £25,000. Loan companies are required to show the rate or annual percentage rate that are charged on their loans during advertisements. This rate is known as the APR, and it examines any charges and fees that you may need to pay during your time taking out the loan, as well as the interest rate that you will be expected to manage. Ideally, when you are comparing loan options, this is the rate that you should pay attention to. The lower your APR, the cheaper your loan will be.
Bear in mind, however, that when you are examining APR solutions, the advertised APRs you will be able to see on commercials and banners will only be a representative rate. This means that not all successful applicants will necessarily be able to access that rate. However, at least 51% of all borrowers will need to receive the advertised typical loan rate by law.
The biggest problem with this pricing method is that you will need to actually apply for the loan in question before you can find out what sort of rate you will be given by the company you want to borrow from. To find out what kind of rate you can be offered, the provider will need to run a credit search that leaves a mark on your credit file. Unfortunately, if you end up with too many searches in a short period of time, you could have an adverse impact on your credit rating.
Fixed Term and Fixed Rate Loans
The majority of unsecured loan providers cam offer you a certain amount money for a set period of time. This will mean that you will know from the moment that you take out your loan exactly how much you will be expected to pay each month, as well as when the loan is due to be repaid and the amount of interest you will be charged.
Usually, you will be able to borrow anywhere up to £10,000 with a personal loan, although some providers will be willing to offer loans for as much as £25,000. Before you consider taking out a loan with any provider, you should carefully consider whether or not it’s likely that you might end up paying your loan off ahead of time. If you want to pay more than the minimum amount on your loan every month, or you feel that you might want to pay it off completely with a lump amount before your term has finished, you may be charged a penalty for the privilege. Indeed, it’s not unusual for lenders to charge a couple of months of interest to those who want to pay off their loan early.
However, there are some loan providers on the market today who will not charge any fees for early repayment. If you think that you might be able to pay off a loan early, then it makes sense to go for one of these loan options and potentially reduce the amount of interest that you have to pay.
Unsecured or Secured Personal Loans?
The final thing to consider when taking out a personal loan is whether you want it to be secured or unsecured. Secured loans are secured using your assets, which could mean that if you fail to make repayments that your property gets repossessed. Because of the risks associated with secured loans, it’s crucial to be very careful. However, secured loans are best for people who need to borrow a large amount.
Secured loans also come with variable rates, which could mean that your provider ends up raising the cost of borrowing at any time. However, because unsecured loans come at a fixed rate, you know exactly how much you’ll be paying each month.