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Personal Loans - Top Level Guide
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Personal Loans
A personal loan is a way of borrowing money from a bank or building society, which you can use for just about any purpose, although most lenders stipulate that the loan shouldn't be used for commercial purposes. You choose the amount you wish to borrow and the period of time you want to repay the loan over. You make regular monthly repayments to pay back the full amount of capital plus interest.
As each repayment contains an element of both the capital and interest, you are guaranteed to repay the loan at the end of the term, provided you make all the payments on time.
Different Types of Personal Loans
You can get unsecured personal loans or secured personal loans:
Unsecured personal loans are generally available for between £1,000 and £25,000 over terms of 1 up to 7 years. You don't have to put your house or other property up as security.
Secured personal loans work the same way, but are secured against your property, so you run the risk of having your home repossessed if you don't make the repayments. You can borrow more, up to the value of the equity in your home, over a longer period of time.
Specific loan types, like car loans and home improvement loans, are just unsecured personal loans or secured personal loans by another name.
How Personal Loan Providers Make Their Money
Basically in three ways:
- Interest - you pay interest on the loan which represents the lenders profit on the loan itself;
- Fees - some loans charge set up or arrangement fees. If you want to repay the loan early, you may be charged for this, and if you miss a payment, you can expect to pay a fee for that too.
- Associated Products - Lenders will try to sell you other products, such as payment protection insurance. The sale of these accounts for a good portion of their income.
Make sure you understand the things to watch out for when choosing a personal loan and the range of key factors to consider in your decision about which personal loan is right for you.
Compare personal loan best buys for the current best deals around. Our personal loan money saving tips will also give you some useful pointers.
What to do next
Take a look at our range of guides for the pros and cons to each type of personal loan. Just click on any of the links on this page to find out more.
Take a look at the latest personal loans best buys to check the latest rates and deals on offer.
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