Loans / Personal Loans

A Guide to Personal Loans
Personal Loans are offered by lending institutions such as banks and building societies. They are available in a variety of formats.  Detailed below is a quick and easy guide to Personal Loans.

Which Loan?
Personal Loans are available in varying amounts and usually depend upon the purpose for which you require the loan.  The amount borrowed usually varies from £500 upwards and is usually repayable over a period of between 6 months and 10 years.  Lenders charge interest rates on the amount borrowed.  Their rates can either be fixed or variable.  

If the rate is variable, the rate changes with market forces and could change the amount you repay.  Fixed rates offer more certainty but can be at a higher rate.  As a general guide, it is advisable to compare the Annual Percentage Rate, (A.P.R) of different lenders.

Depending upon your circumstances, Personal Loans can either be secured or unsecured.  Secured Personal Loans have your property set against them as security for the amount borrowed.  The interest rate on home owner loans tends to be lower than unsecured loans.  Personal Loans are repayable on a monthly basis at a fixed amount.  However, some lenders offer the option of over-payments or under-payments that could assist you with your personal circumstances.
 

How Do I Apply?
Lending institutions offer you the option of taking a Personal Loan either in person, via written application, over the phone, or on-line.  Assessments can be made very quickly.  Your income and financial commitment details are collated together to see whether or not you can afford to take on the Personal Loan.  The suitability of the Loan itself for its intended purpose is also assessed.  Lenders use credit scoring facilities and credit reference agencies to assess your suitability.  Credit Scoring assesses your personal statistics, for example your age and occupation and each statistic is given a score.  

This is to ascertain which broad category of borrower you fit into.  Credit reference agencies provide a detailed analysis of your own financial position.  In particular, any county court judgements, (C.C.J's) which you may have, details of previous credit searches against you and details held on the electoral roll about you.

If you are refused a Personal Loan or wish to make enquiries concerning your own credit file, you can apply to the credit reference agencies for a copy of your credit file.  A small fee will be charged for this service.  Details may be obtained from your lender.
 

How Am I Protected?
The Consumer Credit Act governs personal Loans.  The Act contains strict regulations about how money is lent and covers loans up to a value of £25,000.  When taking out a Personal Loan you will be asked to sign a credit agreement.

Read this through carefully before you sign, as you will be bound by its terms.  Some Lenders offer insurance policies or payment protection schemes to protect you in the event of accident, illness or redundancy.  However, cover may vary and you should check with your individual lender what a particular policy or scheme covers, or more importantly, excludes.

If you do have difficulty making your repayments, seek advice from your lender immediately.  The earlier the better and the more sympathetic they will be.  For example, they may accept an underpayment, until you get yourself back on your feet.  Alternatively, you can seek advice from a voluntary organisation