Most of us have been in a situation where we couldn't pay for something because we didn't have enough money. This could include car insurance or repairs, tuition, a trip, Christmas gifts, electronics, or even just the weekly groceries. Credit Action says that in the first three months of 2005, 2.4 million personal loan agreements were made, for a total of GBP13.5 billion. The national charity that teaches people about debt said that 30% of the personal loans were for cars, 24% were for home improvements, and 20% were for debt consolidation. By March 2005, the total amount owed on personal loans had reached GBP93 billion.
Personal loans can help you get through a tough time when you don't have enough money, but don't take the first one you find. If you do, your loan could turn into a lifetime commitment and a source of stress. There are many websites that let you compare personal loans, such as money net, Moneyfacts, and lower bills.
In their guide to consumer loans, money net says that as a general rule, the more you borrow, the lower your interest rate will be. For example, a loan of GBP1,000 could have an interest rate as high as 20%. The lenders are said to justify this by saying that getting a loan involves high administrative costs. Lenders might only charge interest rates of around 6 percent on bigger personal loans.
There are two types of personal loans: secured and unsecured. Most people get unsecured personal loans because secured loans put the borrower's home or other assets at risk. Secured loans are based on the idea that the borrower will put up some kind of security, usually the borrower's property, to the lender. This lets the lender take ownership of the asset if the borrower can't pay back the loan. Even though the possibility of losing your house may seem like a big drawback, a secured loan often lets you borrow more money at a lower interest rate.
Even though there are benefits, most people don't want to lose their homes, so they take out unsecured loans instead.
When looking at personal loans and trying to find the cheapest one, you should know that you need to look into both the terms and conditions and the APR (APR). Keep in mind that if you have bad credit, the terms of the loan may reflect this. Do your research on any fees or penalties you might have to pay if you want to pay off your loan early. Some lenders will also offer payment breaks (deferred payments) at the beginning of the loan period or maybe even during the term. Again, read the terms and conditions and make sure that interest won't build up too much during any break periods.
The Consumer Credit Act of 1974 sets the rules for personal loans in the UK. However, you are ultimately responsible for borrowing a certain amount of money, and once you sign a credit agreement, you have to follow its terms and conditions.
If you are having trouble making the payments, you should always let the lender know as soon as possible. Also, keep in mind that any problems with loan payments will likely show up on your credit record, which will affect your ability to borrow in the future.
