Personal loans – the basics

Personal loans are widely used to help fund various activities.

The term personal loan in practice covers a wide range of loan products and may be used differently from one bank to another.  In general it can be seen as being a loan advanced to you as an individual rather than to a company or a legal entity.

The basic characteristics of a personal loan include:

• the amount being borrowed;
• the interest rate charged;
• the repayment period (in months or more commonly, years);
• the purpose the loan is required for (some purposes may have specific loan products available such as business development loans or property improvement loans).

The interest rate

The interest rate is commonly quoted as an APR (annual percentage rate) figure.

In general, the higher the APR quoted on a loan then the more it will cost you overall – all other things being equal.

Note that the APR quoted in many advertisements doesn’t necessarily mean that you’ll be offered that rate and is the ‘typical; rate they offer a customer.  The actual APR used in your specific circumstances will depend upon several factors including, for example, your personal credit history.

If you have a poor credit history then you may not be eligible for the lowest APR.

To qualify

Many financial services organisations offer personal loans. To obtain a loan you’ll typically need:

• to be in employment and earning a regular wage or salary;
• to have a verifiable UK address;
• to be looking for a loan amount that is realistic when considered against your earnings and other regular financial outgoings plus the purpose it will be put to;
• to have reasonable credit history (individual lenders’ policies may vary here).

Security

Individual lenders may have different policies regarding security. 

Depending upon the amount borrowed, your history and the purpose, some may ask you to secure the loan against an asset – often your home.

Remember at all times that if you are unable to pay off a loan secured against your home then it may be at risk of being seized so that the lender can recover the loan.

Personal loans, when used sensibly and responsibly, may be able to help your life run that bit more smoothly.