The Basics of Personal Loans Explained

Personal loans are given out to many people throughout the UK each year, and they can be a great borrowing option to explore. If you want to get a personal loan, you should make a point of learning everything you can so you don’t have any regrets later on. Whether you want to consolidate your debt or buy a new car, getting a personal loan can provide you with the necessary funds. This article will help you learn more about these loans before you go ahead and fill out an application with a bank or credit union.

How Personal Loans Work

The concept of personal loans is fairly straightforward and easy to understand. You are essentially borrowing money from a bank for a certain period of time, and you’ll pay back the money in monthly instalments. The amount of money you are allowed to borrow depends on the lender and your income among other factors. These loans are typically given out for terms of 1 to 20 years.

Secured and Unsecured Loans

There are secured and unsecured personal loans, and it’s important that you know the difference between the two. A secured loan requires what is known as “collateral”, which is property that the lender temporarily takes ownership of until you pay off the money you owe them. In the case of a mortgage it would be your home, or your vehicle in the case of a car loan.

Secured loans can be quite risky, but they are usually easier to get for those who have bad credit. These loans also typically come with a lower interest rate, so you end up paying less overall. An unsecured loan is harder for the average person to get, but it doesn’t require that you risk your own property at all. If you have a good credit score, you will want to consider applying for an unsecured loan.

It’s important to keep in mind that both secured and unsecured loans have their benefits that you should explore before making a decision.

Qualifying for a Personal Loan

There are some basic criteria that you will need to meet to qualify for a personal loan. If you want to get a secured personal loan, you will need to have a fairly good credit score. Every lender has their own standard for “good credit”, so you will need to keep that in mind.
You will need to be a legal citizen of the UK and have adequate income to get a personal loan. When you apply for one of these loans, the lender will take a close look at how much you make as well as your employment history to determine how much of a liability you are.

If the lender determines that you don’t make enough money to pay back the amount you want to borrow based on the documents you have provided them with, your application will most likely be rejected. If you are applying for a secured loan, credit isn’t so much of an issue. You should be able to qualify for a secured loan as long as you meet the bare minimum requirements and have collateral that is worth at least the total amount of the loan you are taking out.

Getting a Personal Loan with Bad Credit

It can certainly be difficult to get a personal loan if your credit score is low, but there are certain things you can do to boost your chances of getting approved. You should make an effort to get a co-signer, which is someone who will agree to pay off the remainder of your loan if you cannot for whatever reason. You will need to find someone with a good credit score and stable/adequate income though. A co-signer can really help with getting approved for a personal loan if your credit isn’t great.

Before You Apply

There are certain things that you will need to do before filling out an application for a personal loan, including taking a look at your credit report. You should be able to get a copy of your credit report without paying anything, and it will provide you with some potentially useful information. Your credit report will let you know where you are in terms of your credit so you can manage your expectations.

You should also make sure that you will be able to pay back the money you borrow so you don’t end up in a very bad financial situation later on. The best thing you can do is to spend some time looking over your finances before filling out an application for one of these loans.

Finding a Lender

Because you will have a lot of lender options when it comes to getting a personal loan, you should spend some time researching them. Take all the time you need to compare the options you have with various lenders so you don’t spend more than you really need to. Some lenders will charge you a higher interest rate than others. The internet can be a very useful resource when doing this research.

One very effective way to find a good lender that you can trust is to read reviews for a few of them online. The more time you devote to reading these reviews, the easier it will be to make a final decision that will ultimately benefit you financially in the long-term.

Is a Personal Loan Right for You?

There are many considerations that need to be made when it comes to deciding if a personal loan is the right borrowing option for you. This partially depends on how much money you need to borrow, because personal loans give out some of the largest amounts. If you want to buy a new house or car, you will likely need to get a personal loan. By understanding the fundamentals of these loans, you can manoeuvre your way through this entire process smoothly. A personal loan could be exactly what you need, but you will need to educate yourself before reaching a final decision.