Only Finance.com - Things to consider when choosing a personal loan

Loans - Things to consider when choosing a personal loan - 12/06/2008

Taking out a personal loan is usually the standard way to borrow money from a bank, building society or another form of lender. Usually you can take out around £15,000 to pay off from anywhere between six months to ten years it would generally depend on the state of your finances.

Loans can either be secured, unsecured, or flexible. A Secure loan is loan that is usually tied to your house; this means that if you’re unable to keep up with repayments you may be forced to sell your home. An unsecured loan is one that is not tied into anything, but should you ever find your self in a situation where you default on your payments you could find yourself being black listed. Being black listed could result in you being unable to take out new credit cards, a mortgage or to be able to take up an interest free deal on offer in a shop. A flexible loan is when you can pay back the money whenever you want, this type of loan is becoming more common but the interest rate charged is often higher.

To make sure you get the right deal for you, the best thing is to look around at all the offers available to you. Usually you will find the more you borrow the lower the interest rate will be, but rates may vary from around to 7% up to 20%. Also the shorter the loans will be less interest. And it is better to apply for one loan at a time. Also make sure to check the small print to see if there are any penalties. And to take into consideration loan insurance should you be unfortunate and fall ill.

You may also find that you do not have to go to a traditional bank or building society for a loan. As many supermarkets are now known to offer good deals on loans also. This is another reason to keep your options open whilst looking for a good deal on a loan.

Also take into consideration that when comparing products lenders usually calcutlate the annual percentage rate (APR) differently. And try not to pay attention to the monthly interest rates that are advertised in shops, as they are usually lower than the APR and can be misleading you into thinking that you’ve found your self a really good deal.

The most important thing is to make sure you know exactly what the monthly payments will be, and how much you will pay back in total. Remember that if your bank or building society turns down your loan application, it is obliged by law to explain the main reasons for doing so.