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Does It Pay To Get Personal?

Posted by rafael on February 8, 2013 in Lifestyle

There are lots of different sorts of finance options available but the most common type when it comes to day-to-day things like buying a car or consolidating your credit cards, the most common is the personal loan. A personal loan isn’t secured against assets such as your house and for this reason is sometimes referred to as an unsecured loan. For this reason personal loans have a higher interest rate than mortgages and other types of secured loan, especially when borrowing smaller amounts.

There are several advantages to a personal loan. Firstly you can borrow more money than on a credit card; usually up to £25,000 and interest rates will generally be lower than for credit cards or overdrafts. Secondly the repayments are usually fixed for the life of the loan so it’s easier to manage your budget because you know exactly how much you have to pay each month and it won’t vary with changes in interest rates. Furthermore, when you take out a personal loan you can choose the length of time over which you want to pay it back. Paying the loan over a longer period will reduce the monthly amount but bear in mind that you’ll end up paying more in interest over the life of the agreement.


There are a few things you need to look out for when taking out a personal loan. The interest rate is the most important as this determines how much you’ll have to pay back. It’s usually the case that you’ll pay less interest on a larger loan but don’t be tempted to borrow more than you need to just to get a lower rate – you still have to pay it back. Be aware too that the rate you get offered may not be the one you see advertised – known as the representative APR (sometimes called the headline rate). Loan providers only have to offer the representative APR to 51% of applicants so if your credit history is less than perfect you may end up paying a higher rate than the one on the posters. Make sure that there are no penalties if you want to repay the loan early or make over payments to pay it off more quickly. These payments may be referred to as early repayment fees or redemption charges. Amounts vary between providers though they generally equate to one or two month’s interest on paying the loan off. You’ll generally end up paying more if you repay earlier in the term in order to compensate the lender for the interest they’ll be losing out on.



Some personal loans offer variable interest rates which go up and down according to the bank base rate. If you’re stretching your budget in order to meet the repayments it’s best to avoid this type of loan as you may struggle to pay it back if interest rates rise.

Shop Around

It’s worth approaching your bank or building society about a loan but don’t accept the first deal they offer you. You’ll find it pays to shop around to find the best deal on a personal loan. There are plenty of broker sites online that will allow you to compare offerings from different companies. If you have a good credit rating it’s worth considering the peer to peer loan providers. These often offer lower interest rates and are available for smaller amounts. Comparison sites often include peer to peer loans in their listings.

When you take out a personal loan you have a 14-day cooling off period from when the agreement is signed or when you receive a copy – whichever is later. If you cancel after the money has been paid to you then you have 30-days to pay back the full amount and any outstanding interest.

Be wary of any companies that ask for an upfront fee to arrange a loan. If there is any sort of arrangement charge it should be rolled into your overall repayments, you should never agree to pay anything in advance.


Personal loans are a convenient way of borrowing money for a wide variety of purposes. If your credit rating is good you should be able to find one to suit you but make sure you shop around to find the best deal.

Freelance writer Stuart Edge writes articles on finance and loans to help consumers understand this complex field.

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