A personal loan is an unsecured loan, which means that there is nothing secured against it. Some loans have an asset such as your home secured against them, which means that you have to have something of value to secure against them before you can take one out. With an unsecured loan you do not need this, so if you are not a home owner and have nothing else of value you still will be able to get one.
About personal loans
Personal loans tend to offer borrowers over £1000 and require monthly repayments. The amount that you repay will depend on how much you borrow and how much you can afford to repay. The term of the loan may be able to be extended in order to allow you to make smaller repayments. The loan will last for longer and will be more expensive. This type of loan are offered by quite a lot of lenders so you will be able to compare them and see what different terms are available to see which you feel look more favourable to you. The interest is often fixed which means that you will know exactly how much you will be expected to repay for the loan. This means that you will be able to more easily budget so that you know that you can afford the repayments. The interest rate on the loan may change according to how much you choose to borrow. Sometimes if you borrow more the interest rate will be lower.
Who are they for
The loans are designed for those that need to borrow larger sums of money but have nothing to secure against a loan. As you can often borrow more than with a credit card, overdraft or payday loan then those applying for them will need larger sums of money. They can also be cheaper than other forms of unsecure lending but it is worth checking as prices will vary between lenders. They are designed to be used for all sorts of things and you will not need to explain why you want it. They can also be used to consolidate debt which can be useful if you have a lot of expensive debt that you want to repay.
Are they the right choice for me?
It is an individual decision as to whether this sort of loan will be the right choice. As with everything it is wise to compare the different types of lending available to you and see which looks like it will be most suitable. Compare prices as well as other features. You may find that a personal loan will allow you to borrow more money than a credit card or overdraft and it could be cheaper too. However, if you use it to repay another loan you need to make sure that you do not borrow more money before you repay it. For example, if you use it to clear a credit card, then make sure that you do not start accumulating credit card debt again while you are paying it off. Try to be disciplined and do not use the card or pay it off in full each month so that you do not accumulate more debt.
If you do have a home or other asset then it might be cheaper to get a secured loan instead. However, it is worth considering the risk of this. You need to think about whether you will be able to make the repayments. If you skip some repayments then the item that you have secured against the loan could be repossessed. This means that you will lose it. If this is a home or car then this could have a huge impact on your life. Although not repaying any loan will have repercussions it is less risky with regards to losing items of value if you have an unsecured loan. They are more expensive as a result but you may think that it is worth it for the peace of mind. If you miss repayments then you can choose to sell items you own to pay for it rather than being forced to have your home or car sold.
It is always wise to think about whether you really need a loan at all. It might be best to try to manage without one as it would be a lot of cheaper. Of course, sometimes it is in our interest to get a loan or we cannot manage without one. Then it is important to choose the right loan at the right price so that we get exactly what we need. This is why you need to understand what a personal loan is so that you can decide whether it seems like the right loan for you. Then you can compare the different personal loans available and choose the one that is the most attractive to you.