Understanding The Concept Of Personal Loans And How To Use Them

A personal loan is a good choice if you are trying to take up a loan and pay back a fixed sum each month. Before you take a loan, this is what you need to know and how to ensure you get the best deal.

What Are Personal Loans?

Personal loans are loans UK which are issued by banks and similar lending agencies. These loans are not secured against properties like your house or other important assets.

They are also referred to as unsecured loans.

What Are The Advantages And Disadvantages Of Personal Loans?

Advantages

There a lot of advantages that one can get out of personal loans UK, like

  • The possibility of getting bigger amounts of money is more than anyone has with credit cards.
  • If you have an above-average credit rating, then the interest charged will be less.
  • To make budgeting easier, loan repayments typically have a fixed amount to be paid per month.
  • Before applying for a loan make sure that you know which type of interest you are applying for, as there is fixed interest and variable interest which one can opt for.
  • You have the option of choosing the duration of your payment and you must keep in mind that the interest rate charged will be aligned with the duration of repayment you choose.
  • If you know what you’re doing then you have the option of consolidating your all debts in just one.

Disadvantages

Along with the advantages, there are certain disadvantages that personal loans Uk bring to the table such as

  • On certain occasions, personal loans UK has interest rates that are higher than the other available loans. This might be a hindrance if you want t take out small loans UK.
  • Due to the fact that taking a relatively larger sum of money will reduce the rate of interest charged will be comparatively lesser, this may prompt people to take out more than they can afford.
  • Certain financial institutions do not lend lesser than £1000, thus sometimes people may end up taking a loan of huge amount which may cause financial complications in the future.

Secured Personal Loans

If you’re the homeowner, you may be willing to take a secured loan. But, that could be a much more risky option because the cash you borrow is protected against your property, which implies that if you can’t repay the loan, the lender may compel you to sell your property to pay off your loan.

Getting The Best Deal

Follow the following steps before you apply for a loan UK

  • Always remember, don’t just accept the first quote on the interest rate that you hear.
  • Scan around to see which service providers give the cheapest APRs. Try comparing APRs but note that if you have a bad credit history you could end up paying extra. A ‘credit eligibility checker‘ or a ‘credit calculator’ will help you check your ranking.
  • Question the lender before applying, for a quote. If you need to check your credit record, ask if you can do a ‘quotation scan’ or ‘soft search credit check.’ They do not put a mark on your credit record. Nonetheless, a search for applications may adversely affect your credit rating.
  • If you have decent enough credit scores then considering peer-to-peer loans is advisable as you can get loans UK for small amounts at cheaper interest rates.

Things To Look Out For Before Applying For A Loan

Obtaining loans UK may sound convenient at times but there are always things that you should be aware of and make it a point to keep an eye out for it

  • Many personal loans have variable interest rates, which means they can go up or down. If you can only afford the initial repayments, in case they go up, you can avoid this form of loans UK.
  • Before considering any Payment Protection Insurance (PPI), think cautiously. This is insurance covers repayments of your loan when you have an accident, are unwell and cannot work or lose your work. It has been inaccurately-sold in the past, however, and many of the offering plans have not been satisfactory or paid out at all. If you want this coverage, by comparing rates with several different firms you can almost certainly get a much better offer.4
  • Check for any contract fees that may make a loan more costly. When calculating how much the loan will cost you make sure you include them. Arrangement payments are specified in the APR (annual percentage rate), this is why you should also compare APRs with interest rates.
  • You may not even get the borrowers advertising the interest rate. If your credit rating is less than good, you will be approved for a loan but will be charged a higher rate of interest. Prior to applying, ask the lender for a quote.

What Does The Cooling Off Period Refer To?

You get a cooling-off period of 14 days, from either the date of the loan agreement is signed or when you obtain a copy of the contract, whichever one comes later. You will be given up to 30 days to pay back the money if you happen to cancel it. You can only be charged interest for the term of the loan, any extra charges will be reimbursed.

Robert Kelly
 

Robert is a business editor who writes about various topics such as technology, health and finance. He works along with the colourful folks that build a nation through tech startups. He is also a professional football player and video games enthusiast.