Personal Loans UK

The Ultimate Guide to Personal Loans

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For those who want to borrow money and repay in fixed monthly instalments, a personal loan is an ultimate financial route to consider. When you have got some plans to accomplish but are running short of funds, you may rely on this to help you achieve your goals. The unsecured lending industry is always under speculation for the high-interest rate that the lenders charge. However, if you borrow money responsibly – a personal loan can benefit you in various ways.

In this article:

What is a personal loan?

It allows you to borrow money in a lump sum without pledging any asset as security. So, if you do not own a home, or a car, or any other valuable asset – you can apply for a personal loan. For this reason, they are often termed as an unsecured personal loan. Individuals who have a good credit score may easily find a loan at suitable interest rates. However, people who have a “not so perfect” score may face a little difficulty in arranging a loan for themselves. Your credit rating is one of the principal factors that will influence the rate of interest that you will receive from lenders.

How much can you borrow?

With a personal loan, you can borrow up to £35,000. Typically, lenders offer you a range of £1,000 to £35,000. However, the amount that you can borrow depends on your personal circumstances as well. These loans allow you to borrow more than a credit card. And sometimes, the rate of interest that you pay for an unsecured loan is much less than a credit card. Also, it offers you the opportunity to choose the repayment tenure that generally lies between 12 months to 84 months. You can spread the cost of repayments over several months considering your income and expenses so that you can make the payments on time and in full, without any fail.

How do personal loan repayments work?

There are two types of interest rates for these loans – (i) fixed, and (ii) variable. With a fixed rate of interest, the monthly instalments that you have to pay will be fixed for each month. However, with a variable one, the amount that you have to pay each month may vary. If you choose a personal loan with a fixed rate of interest, it will be easier for you to prepare a budget and stick to it. With a fixed-rate loan because the amount you have to pay each month is predictable. Your credit score will be ruined if you fail to make the repayments on time. After a certain number of payment failures, the lender may report it, and you may receive a County Court Judgement (CCJ). It will restrict your chances of borrowing a loan for the next 6 years.

Understanding loan rates

As a borrower, you must understand the mechanism of the interest rates as it will help you in finding the right personal loan according to your needs and affordability. An interest rate influence the cost of borrowing. Whenever you consider borrowing money, compare the options that you get based on their Annual Percentage Rate (APR). It is the overall cost of borrowing while an interest rate indicates the cost of borrowing the principal amount only. An APR of the loan depends on the below-mentioned factors:
• Your income and expenses, i.e., debt-to-income ratio
• Credit score
• Length of the loan
• Employment status
• Past relationship with credit, i.e., credit history
You must have come across the term “Representative APR” when searching for loans. It is offered to only 51% of the successful applicants whose loan applications are accepted. The better your credit score – the lower the rate of interest that you will receive.

Common uses of a personal loan

A personal loan can be used for a variety of reasons, however, this comes with some limitations. If you are planning to borrow it so that you can lend the money you receive to someone who doesn’t qualify for a loan, then you must reconsider. This loan acts as a much-needed cash injection during emergencies or if you have a plan to buy a big-ticket item. It can be used for anything that needs upfront money and may take you many years to save for it. Some of the best ways to use a personal loan are listed below:
• Weddings
• Vacations
Home improvements
• Home moving expenses
• Medical expenses
• Buying a car
• Debt consolidation
• Pay off credit cards
• Pet care expenses
• Making your home energy efficient
Many people consider taking out a personal loan for home improvement, as necessary changes in the existing property help to boost its overall value in the property market. Therefore, it is considered more of an investment rather than an expense.

Pros and cons of a personal loan

Everything has its own set of advantages and disadvantages. A few important ones are listed below:

Pros

You can apply for a personal loan online and borrow as much as £35,000 without any collateral.
You can spread the cost of repayments over several months that will help you in keeping up with your regular expenses.
If your loan application is received, you will receive the funds in your bank account within a few hours.
Cost-efficient mode of borrowing and also offers you the freedom to spend it on your own terms.

 

Cons

If you are borrowing a small amount, the interest rate may be high.
Your credit score is at risk if you fall behind the repayments.
A few lenders may impose an early repayment fee if you repay the loan before the agreed date.

Note: Please check with your lender about early repayment fee and go through the Terms & Conditions before signing on the dotted line.

Frequently Asked Questions

Here are some of the questions that you might be wondering about:

What is the basic eligibility criteria for applying for a personal loan?
You must be a legal citizen of the United Kingdom and you need to be 18 years of age or above when you are applying for a personal loan. Also, you must have a valid and functional bank account. Please do not apply with us if you are on Individual Voluntary Agreement (IVA), Debt Management Plan, Debt Relief Order, or if you have filed bankruptcy in the past.

How long will it take to receive the funds?
There are many lenders who claim to provide Same Day Personal Loans in the UK. Mostly, the loans are disbursed by the lenders within a few hours of approval, and in some cases, within a few days. However, this is not guaranteed, as the actual time for loan disbursal depends on the lender and your bank as well. Before entering into a deal legally, check this with your lender once.

Is a credit check mandatory?
Yes. The lenders need to run a credit check on your profile by law – before making a decision regarding your loan application. Our partner lenders run a soft credit check to offer you initial quotes. This credit check doesn’t impact your credit score and doesn’t leave any footprint on your record. However, a hard credit check is conducted by them before making the final decision.

If there a fee for applying for a loan?
We do not charge any upfront fees to our customers. And taking out a loan from our partner lenders doesn’t mean that you will be charged high-interest rates.

Do I need to be a homeowner to apply for a loan?
No. We also offer Loans for Tenants and that means whether you are a homeowner, or a tenant, you can apply for a personal loan with us. Lenders were wary of lending to tenants in the earlier days. However, now more and more lenders are offering loans to tenants by gauging the borrower’s creditworthiness and affordability.

Is there something I can’t borrow a personal loan for?
Yes. You cannot borrow a personal loan to use the money that you receive in gambling, stock market, illegal purposes, refinancing a loan arranged through the Student Loan Company, mortgage payments, and business purposes.

Bottom line

Before you apply for a personal loan, evaluate how much amount you need, for how long and your debt-to-income ratio. It will help you to know how much you can afford to repay keeping in mind your regular expenses. Also, it is essential that you deal with a financial firm that is registered by the Financial Conduct Authority (FCA) so that you do not enter any kind of scam in the future. To know the authenticity of a firm, you may visit the Financial Services Register. In addition to that, always compare loans from various lenders so that you will be able to find the one that offers a considerable loan rate. There are various lenders who offer loans and their rate varies from each other. Draft a repayment strategy so that you can meet all the repayments on time and in full as it will help you improve your credit score.

If you feel that a personal loan is the right option for you and you can easily afford all the repayments – it will take a couple of minutes to apply with us.

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