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.