Introduction to Personal Loans
At some point in your life you may need to make a purchase which you cannot afford. Perhaps you would like to travel abroad and visit friends, renovate your home or help pay for your child's wedding, but you do not have sufficient savings.
A personal loan enables you to borrow money from a financial institution, and repay the amount borrowed over an extended period of time. In exchange for the financial loan, you will be required to pay interest on the amount you have borrowed. This means that the total amount you repay will exceed the amount you initially borrowed. Interest charges vary depending on the amount borrowed, the length of the repayment period, the applicant's current financial circumstances and their borrowing history.
Personal loans are available from many different sources, the most common being high street banks and building societies. You can make personal loan applications in person, over the telephone or online. Many UK supermarkets also offer loans at rates competitive with those of high street lenders.
Although interest charges mean that personal loans are typically expensive, the wide availability and ease of comparison make it possible to find a good deal if you are willing to shop around. You should bear in mind that a personal loan offered by your own bank may not suit your needs, and you are under no obligation to borrow from the financial institution where you are an account holder.
Depending on the value and the purpose of the loan, the applicant is usually able to negotiate their preferred repayment period. This has a direct impact on the final cost of the loan; the longer the repayment period, the more money you will pay out to cover interest charges. Loan payments are usually made each month, but some lenders will accept more or less frequent payments from customers.
Loans are a long-term commitment and any interest charges that you pay over this period can add a substantial amount to the total cost of the loan. It is important to take the repayment term into account before deciding to apply for a loan (see Applying for a Personal Loan).
Usually, you will apply to the financial institution with details of the amount you wish to borrow, and the time you need to repay this amount. Advisers will assess your financial circumstances and decide whether they are willing to lend you the money you need. If they agree to the loan, they will draft a contract which you must sign. This contract details the amount borrowed, the repayment term and the interest rate.
If you sign the contract you are expected to honour the agreement. If the financial institution considers that you are likely to have difficulties repaying the loan, they may refuse to lend you money.
You may also wish to consider a loan from the government if you are already receiving state benefits.
For more details, see:
