Using a personal loan

The personal loan can be a very useful tool when used appropriately.

Let’s consider for a moment a typical family that may have children, a house, a car and a mortgage.

However pleasant that all sounds, sometimes they may need a little extra cash for any one of a number of reasons:

• a window frame in the house is rotten and needs to be replaced;
• some new garden furniture is needed;
• the children have the opportunity to take a trip overseas;
• a shower room needs to be fitted.

Whatever the reason, a personal loan may be the answer.

The loans can be for potentially any amount and the maximum advance will depend upon your personal financial circumstances and to some extent, the purpose the loan is required for (and the financial organisation’s own limits as well).

Repayment periods and interest rates typically vary widely and shopping around is often highly advisable.

This form of loan may or may not need to be secured against an asset of yours although smaller loans typically don’t require such security. It depends to some extent upon the policy of the loan provider, the amount you’re borrowing and your credit history records.

Typically, people with poor credit histories may have to offer security or pay higher interest charges (or both).

It’s worth keeping in mind that if you default on any loan secured against an asset (e.g. your house) then that asset may be liable to seizure.

If you’re using this type of loan to purchase something, some lenders may ask to see evidence of the purchase price in advance – such as a supplier’s invoice etc. Some may also expect to see that you are paying for a percentage of the item or expense out of your own financial reserves.

If you are considering:

• purchasing a major asset such as a car;
• funding a major home improvement such as a conservatory;
• starting up a business;

then it may be worth checking to see if there are specific loan types available for such purposes.

They may prove to be a little more suitable than a standard personal loan in such circumstances.