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Personal Loan

Personal Loan

Category: Loans

Updated: 31/10/2008
First Published: 11/10/2006

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

When taking out a personal loan it is important to take time comparing the rates and features on offer from different providers.

Rates on personal loans are expressed as Annual Percentage Rates (APR). Any firm that lends money is required by law to quote the APR. Introductory rates do not include arrangement fees you may be charged and also don't reflect any higher rate of interest to which your borrowings will ultimately revert. The APR takes into account the interest on a loan plus any additional charges, making it easier for you to compare products. In general, the lower the APR, the better the deal.

The rates on loans vary greatly, so it is a good idea to shop around for a good deal. This can end up saving you hundreds of pounds. When comparing rates for personal loans, you need to remember that you may not always qualify for the advertised rate. Lenders use a credit scoring system to assess personal loan applications. If you credit rating is bad you may be offered a higher interest rate or even refused a personal loan.

Credit scoring takes into account:

  • Your income and outgoings
  • Your payment history on other debts
  • The length of your credit history
  • Any other debts you have
  • Accounts opened
  • Number of applications for credit
  • Number of times your record has been accessed.

The amount you want to borrow and over what period will also affect the rate you are offered. The longer the term of your loan the less your monthly repayments will work out at. However, stretching the term can be a false economy as you will end up paying more interest. If you need the money from the loan on the same day as applying, some providers will allow this but they make charge you.

Most personal loan providers will require you to set up a direct debit to make the repayments. You should check that you have an account that allows this facility. It is also wise to make sure you have enough in this account each month to make the repayments, as charges for unpaid direct debits can be over £30.

Payment protection insurance (PPI) is also available with personal loans which will cover repayments for a certain period of time if you are unable to work due to accident, sickness or unemployment. For more information on PPI see our personal loans guide.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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