A type of loan does not require you to have any collateral as security for the bank or financial provider. Essentially, it means that the lender will not be able to make a claim against your assets, such as your house, if you do not keep up the repayments.
A personal loan means the money is be lent to you as an individual rather than another entity such as a business.
As these loans are unsecured, providers generally require you to have a good credit rating when assessing your application. This means that as well as ensuring you have the ability to make the repayments, such as a regular income, they will also check your credit history.
Your credit history details your past financial dealings such as previous loans, credit card repayments, mortgage details and even utilities such as mobile phone contracts. You can check you current credit score and credit history with an online provider.
With so many providers offering loans, you can narrow them down by comparing rates, repayments and features. Here are some of the factors you should consider:
The interest rate at which you will be repaying the money back.
Unlike savings accounts where you want the interest rate to be as high as possible in order to make money, in the case of loans, you want the APR interest rate to be as low as possible. The lower the rate, the less your monthly loan repayments will be.
The figures given in loan comparison tables are an illustration based on a certain loan amount. For example, in the PocketRate loan comparison table, we use an assumed borrowing amount of £10,000 payable over a 60-month (5 year) repayment period.
Based on this assumed borrowing amount, the table breaks down how much you will be repaying each month together with the total amount you will have paid at the end of the 60 months.
These numbers are very important as it helps you budget your monthly outgoings and give you a indication as to what it will cost you in interest to take out the loan.
It is important to note that you should always visit the website of the loan provider and use their online calculator to get an exact amount based on your own borrowing requirements.
After comparing rates and monthly repayment amounts, consider looking at what else the loan offers in the way of features and benefits. Some examples include:
These days, most loan applications can be completed online with some providers offering you a decision on whether to give you the money within minutes of submitting your details. This can be really helpful in sorting out your finances quickly without having to wait days to find out if your application has been approved.
Some loan providers offer the option of deferring your payments for a set period, usually a few months or so, before you start making your regular repayment amounts.
This can be useful if, for example, you take out a loan for home improvements and need a little space to get your monthly finances sorted out.
If you find there is a time where you are struggling to make your loan repayments, a payment holiday, also known as a repayment holiday, can give you some breathing space.
Essentially, a payment holiday is where the provider allows you to miss a payment for that month. Generally speaking, you are usually only allowed one or two payment holidays during your loan period and not every provider offers them
You may like to start making additional payments in order to try and pay off your loan early. Some providers allow you to do this without incurring charges; otherwise, you may pay fees for doing this.
