The Pros and Cons of Personal Loans

If you’re in need of extra money and you feel as though you would be comfortable with making repayments for the amount that you borrow each month, then a personal loan could be the best option for you. Personal loans are a form of loan that can be offered to you by a bank or another lender, and they are not secured against any of your assets – such as your home. Because you don’t have to worry about offering some property as security against a personal loan, they are also often referred to as unsecured loan.

As with any other type of loan, when you are trying to get the best deal on your personal loan you will need to think carefully about the options that are available to you, and how you are going to make repayments. Here we will take a closer look at the pros and cons of personal loans, and what to think about if you are considering getting one for yourself.

The Positives of Personal Loans

Personal loans come with a lot of benefits that can make them a great option for people considering borrowing money. For example:

– You might be able to borrow a larger amount than you would have access to with a credit card.

– You could consolidate several debts into a single personal loan, therefore reducing your monthly costs of repayment. However, this will also mean extending the length of the loan in most cases.

– You can always choose how long you’d like to repay your loan. Keep in mind however that the length of your loan will affect how much you pay in interest.

– The interest that you pay on a personal loan is often fixed.

– Your personal loan repayments could be fixed amounts, which means that you should have an easier time budgeting for your expenses each month.

The Negatives of Personal Loans

Of course, personal loans aren’t right for everyone. For instance, some personal loans will often have higher rates of interest than other forms of borrowing such as secured loans. This is particularly true if you only want to borrow a small amount. Because the interest rate might reduce the more you borrow, you might end up taking out more money than you need to. Also, older loans taken out before the first of February 2011 will have early repayment charges.

What to Be Aware of with Personal Loans

When you are considering taking out a personal loan there are a number of things that you may need to be aware of. For example, you might not always get the interest rate that was advertised with your loan, otherwise known as the APR or annual percentage rate. This is the rate that will be shown on bank posters or websites, but not everyone qualifies for the same loan. Remember that providers will only have to give their best rate to fifty-one percent of the people that they lend to.

Also, if you find that your credit rating is poor then you might be accepted for a loan but charged a much higher rate than the representative APR. In some cases, your applications for loans might not even be accepted. Crucially, some personal loans also come with variable interest rates, which means that the amount you need to pay each month might go up and down. If you might struggle to make repayments if prices go up, you should avoid taking out this kind of loan.

It’s worth looking out for arrangement fees which can make loans much more expensive. You will need to include them when you work out how much the loan is going to cost. Additionally, think carefully before you decide to take on any payment protection insurance that a lender tries to sell you. This is a form of insurance that covers the repayments you should make on your loan if you cannot work or are unable to pay.

How to Get the Best Deal

As with any financial property, it’s important to make sure that you’re getting the best possible deal for your needs when you are shopping for a personal loan if you want to avoid paying over the odds on your interest rates, or being charged fees that you simply wouldn’t get elsewhere. Make sure that you don’t just accept the first rate or deal that is offered to you by a local building society or bank. Instead, you should dedicate at least some time to shopping around and seeing which providers in your area are going to offer you the best APR. Compare representative APRs and remember that you might end up paying more if you do have a bad credit history. Sometimes a comparison website can help you get a better insight into how much you need to pay.

At the same time, you should consider other options like credit unions and peer to peer loans – particularly if you have a good credit rating. These loans sometimes offer lower interest rates and can be available when you only want to borrow a small amount.

How to Work out a Loan Repayment Plan

It’s important to make sure that you can figure out the full cost of whatever loan or credit you attempt to take out – including interest payments. In other words, you need to be aware not only of the amount you’re borrowing, or how much you feel comfortable paying on a monthly basis. Taking the time to work out the costs of borrowing money will help you to plan your finances and make sure that you can really afford the loan that you have decided to take out.
Here we’re going to look at what goes into working out a loan repayment plan, and the important elements to be aware of.

The Elements that Affect Borrowing Costs

How much money you will pay when you are trying to borrow money will depend on how much you need and how quickly you are going to repay the amount that you owe. For instance, if you only want to borrow a very small amount of money and repay that money very quickly at a low interest rate, then you might not pay very much interest at all. In credit cards that allow for 0% interest on initial purchases, you may not pay any interest at all. Alternatively, if you want to borrow a large amount of money over a long period of time with a high interest rate, this will cost you more.

The best option is often to look at the APR when you are comparing products. The lower your APR is, the better, but you should also look at how much the loan is going to cost overall. This amount will usually be bigger for long-term loans even if your APR is less.

Flexible and Regular Payments

A loan agreement will come equipped with an amount that you need to pay back each month. The loan that you take out may also charge an early repayment fee if you clear the amount you owe ahead of time. Repaying your loan too early however could be a good way of minimising long term costs if there aren’t any penalties.

Other types of borrowing will not need you to make the same amount of repayments every month. For example, if you borrow money through your overdraft or a credit card, then you may be able to determine exactly how much you pay back each month per your needs and the bills that you have to pay. In this case, there may even be no minimum repayment. However, it is important to note that the interest rates on these options can be higher, and some overdrafts will charge an initial arrangement fee too.

Pros and Cons of Regular Payments

There are many benefits to considering regular payments as a way of paying off your debt. Most people find that having to pay the same amount every month helps them to manage their budget more efficiently, and you will also be able to figure out exactly when you will be finished making repayments. At the same time, if you make regular payments you will often be able to pay back the amount you owe early without having to pay a penalty. The only rule is that you will need to overpay by less than £8,000 in a year.

The only really negative aspect of regular payments is that having to pay the same amount each month might be difficult if you currently have a fluctuating income or you’re unsure of what you’re going to earn each month.

The Costs of Borrowing Money

It is sometimes possible to figure out exactly how much money it is going to cost you to take out a loan or credit card with the information that lenders give you. By law, you must find out the interest rate and the fees or charges, as well as the APR. You will also need to find out how much you’ll have to repay in total, and how much you should be expected to pay each month.

Remember that you should be able to find this information on the website of the credit or loan company, and it will also be located in the pre-contract agreement that you signed for credit. No matter the circumstances, the most important thing to remember is that you need to make sure you can make repayments regularly and on time. If you miss repayments then you might have to pay additional charges, and it could also harm your existing rating for credit because lenders often evaluate how you have managed your credit in the past when determining whether they should lend you money.

Make sure that your bank account always has enough money in it each month to cover repayments, and set up a standing order if you need to make sure that payments are not missed.

Borrowing and the Basics of Credit

Although we’d all love to be in a position wherein we could simply afford the things that we need at any given time without extra help or assistance, the truth is that most people will need to take out credit or a loan at some time in their life. Whether you need a student loan to help you pay for your education and fund a potential future within a thriving career, or you simply need to purchase a new car, loans are almost everywhere in today’s modern world.
Here, we’re going to look at the basics of borrowing, including what kind of loans you can get when you’re aged over eighteen, and how you can differentiate bad debt from good debt.

What Kind of Loans Are There?

Most of the time, if you choose to borrow money from any different company or organisation, for any reason, you will need to pay back the amount you owe, plus a little extra known as interest. Interest is shown by lenders as an Annual Percentage Rate, or APR, and this will allow you to compare the costs of various financial products.

Here are just some of the most common ways in which people get access to credit:

– Personal Loans: Most personal loans are offered at a fixed amount. You decide how much you need to borrow, and how long you would like to borrow it for, and then make repayments over an agreed period. You will need to repay the loan through monthly instalments until you have completely gotten rid of your debt, but this is one of the cheapest borrowing options available.

– Overdrafts: An overdraft is a unique type of loan wherein your bank account provider will allow you to take more money out of your account than you actually have within it. This is supposed to act as a very short-term solution to borrowing, as the next time the money you get into your account is paid there, the amount that is owed will automatically be removed to clear the overdraft. Some bank accounts offer interest-free overdrafts, but it’s important to make sure that you do not get overdrawn without permission from your bank.

– Credit cards: With a credit card, a provider simply gives you a card that you can use to purchase things, and at the end of each month you receive a statement of how much you owe. You can choose whether you want to pay off the entire balance on the card – or you could pay as little as 5% of the total balance. Of course, if you choose not to pay the full balance, you will be charged interest on the balance remaining on your card. This amount will then be added to your statement for the following month. If you only ever pay off the interest on your debt, then it will take longer, and cost far more to repay.

– Credit union loans: Credit unions are small financial organisations that are set up by members to help support a local community. Most credit unions will provide small loans that account to around £3,000 or less, and these are often much cheaper options than payday loans. The law suggests that the maximum interest rate any credit union can charge is either 42.6% a year or 3% per month.

– Short-term payday loans: Often the worst option for those in need of credit, short term or payday loans are designed to provide you with a small amount of money until you are next paid from your wages or whatever else makes up your income. The problem with payday loans is that although they are easy to get and quick to apply for they also have very high APRs and often come with very heavy penalties if you miss your repayments. Most experts agree that it is essential to look around for other lending opportunities and cheaper solutions before you even consider investing in a payday loan.
When to Borrow Money

Crucially, no matter what kind of loan you are considering taking, it’s important to think carefully about your circumstances and make an informed decision. Some people suggest that debt can sometimes be classed as either good or bad debt. For instance, good debt is borrowing that allows you to make money or improve the prospects that you have in the long term. For instance, if you buy a car so that you can travel to work and make money this is good. In the same way, paying for a student education can be good too, so long as you can manage the repayments associated with your loan.

On the other hand, bad debt is the type of borrowing that doesn’t give you any kind of real return. For instance, this may involve borrowing money to pay for luxury items or expensive things that you don’t really need.