A personal loan, as the name suggests, can be used for any personal expenses, whether its home improvements, a new car, or a holiday. Here, Norton Finance explains what’s involved in taking out this type of loan.
For personal loans, you can typically apply for anything up to £15,000, although there are some lenders who may be willing to offer £25,000 as the maximum amount. The repayment period will vary from one lender to another, but can range from between six months to seven years. However, if you only need to borrow money for just six months, then Norton Loans recommends that you opt for an overdraft or a credit card instead, as personal loans can be more beneficial for those who wish to pay back the amount over the course of a year or more.
Building societies, banks and loan companies can all provide personal loans, but will differ in terms of the interest rates they offer. Try not to be too tempted by a low interest rate – make sure to take other factors, such as early repayment charges and the length of the repayment period into account as well. Most personal loans come with a fixed, as opposed to a variable, rate of interest. This means that you will always know exactly how much you have to repay every month, and you don’t need to worry about your monthly payment rising unexpectedly at any point during the repayment period. According to Norton Finance, most lenders will require you to set up a direct debit for your payments.
Virtually every lender will carry out a credit check before deciding whether or not to offer you a loan; this will tell them how much of a risk you present, based on your past history of keeping up payments. Although Norton Loans say that a poor credit record does not automatically mean that you will be refused a personal loan, it may make it more difficult, and you may end up paying a higher rate of interest, than another person with a good credit record. Additionally, those who work on short term contracts, or who are self-employed might find it more of a challenge to get a loan.
Personal loans are rarely, if ever secured; this means that if you find that you are unable to repay the amount owed, the lender has no right to repossess your house. This is one of the reasons for the relatively high interest rate associated with personal loans – the lender is taking a bigger risk than they would if they offered a secured loan.