If you’ve been considering purchasing a new car for some time now, or you’ve found that you’re suddenly struggling with the problems caused by a broken washing machine, damaged refrigerator, or old sofa, then you may need to find a new way to get some extra cash. Most of us simply don’t have the money sitting around in our back pocket when we want to make a big purchase or invest in something new for our family. Instead, we either need to turn to loved ones for help, save up cash, or ask for a loan from the bank.
Big ticket items are often paid for with a personal loan – something that can be given to you by a bank or building society depending on your current circumstances, and your credit history. A personal loan or unsecured loan is different from a credit card, or breaking into your overdraft, because it allows you to access a fixed amount of cash over a short term. This amount of money is usually also subject to a fixed amount of interest.
How Much Can I Borrow?
How much you decide to borrow with your personal loan will depend on a range of different factors, including what you hope to do with the money, and how much you can afford to give back in repayments. You can usually borrow anywhere up to £25 thousand with a personal loan, and if you go too high with your request, then the chances are that your lender will ask you whether you can put an asset up to protect them from the loss of your money. This transforms your personal loan into a secured loan.
In most circumstances, the more money you want to borrow with a personal loan, the more you’re going to need to pay back in terms of interest. This is usually because a bigger loan will take longer to pay back. Because of this, some people find that it’s more cost effective to take a larger amount in their loan – but it’s important to make sure that you don’t ask for more money than you can afford to pay back. At the end of the day you still need to give the money back at regularly scheduled intervals.
Most building societies and banks throughout the UK will offer some manner of personal loan – and these loans are also available through a growing network of peer to peer lenders, though these individuals remain unregulated at this time.
Understanding Personal Loan Terms
Most lenders will offer terms that are set at one, three or five years. While it can be tempting to opt for the longest possible term provided by your chosen lender to ensure that you pay back less each month, it’s worth remembering that you’re going to pay more over the long run. For instance, if you’re going to borrow $10000 over three years at a 9% interest rate, your monthly payments would average out at around £360. However, if you extend that term, the monthly payments drop to around £110, but you will end up paying a lot more in interest over the years.
Make sure that you keep an eye out for any deals that seem too good to be true. For instance, businesses and banks might advertise extremely low rates, but by law, those rates only need to be given to around 51% of successful applicants, meaning almost half pay different rates. At the same time, remember that some lenders will charge fees to arrange your loan, which can add extra cash to your repayments.
What About your Credit History?
In most circumstances, the rate that you pay on your loan will depend on your credit score. Many lenders will carry about a credit check when you are applying for a loan, and if you have struggled with repayments or debts in the past then you will have trouble getting the best terms and deals on future loans. Instead, you may be charged a higher interest rate, or turned down completely.
If your application is rejected for any reason, it’s important to make sure that you don’t simply keep applying. Check that your credit record is accurate and take steps to improve your credit score before you try contacting another lender, as the more rejections you get the worse your application will look. Most lenders avoid borrowers with numerous rejections on their history.
Personal Loan Options
For some borrowers, personal loans can be the most attractive option available when it comes to accessing the money that they need quickly. However, it’s worth considering whether other options are available to you if you are at all concerned about your ability to make your repayments. For instance, you could always use your overdraft if you’re looking for a small amount of cash, or make use of 0% credit cards for smaller purchases.