Personal loans (or unsecured loans) are a way of borrowing money from a bank or building society, which you can use for just about any legal 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, and the rate will be set accordingly. You then 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.
Unsecured personal loans are generally available for between £1,000 and £25,000 over terms of one to seven years. You don't have to put your house or other property up as security.
Secured 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.
Specific loan types, like car loans and home improvement loans, are just unsecured personal loans by another name.
Loan providers make money in three ways:
Make sure you understand the things to watch out for by reading our guide on key factors to consider with personal loans.
Compare: Our Best Buy loan calculator allows you to compare up to three products side by side to see all the features and pros and cons of each loan.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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