Advice on personal loans in the United Kingdom

Borrowing money is a big decision and not something that can be taken on the spur of the moment. That’s why most financial experts recommend that you take the time to review the advice section and answer the following questions.

How much do I need to borrow and how much can I repay?

What is a realistic pay period for me?

What are my other loan options?

Should I go for a secured or unsecured loan?

What should I know about interest rates?

How do I find the best loan company or loan broker?

How much do I need to borrow and how much can I repay?

The amount of money you need to borrow is probably the same as the cost of the vacation, car, or whatever else you plan to buy. In any case, that is a decision for you to make, the only advice I can offer is to make sure that you borrow only the amount of money that you really need to be able to pay the repayments.

To figure out how much you can afford, you’ll need to have a money management plan. This plan contains your budget, all household income and all household expenses and helps you identify what you want to do with the money left over at the end of the month. Once you’ve finished your plan, you can see how much you can realistically pay each month. That amount should determine how much you borrow and over what period of time you pay it back.

What is a realistic pay period for me?

It’s very tempting to go for a long repayment period, as it means you can pay a smaller amount each month or even choose to increase the amount of money you borrow. However, you must remember that the longer the term of the loan, the more money you will pay in total (interest and fees).

However, it’s just as important not to end up opting for the shortest possible payment period you can afford and leaving your monthly balance at zero with no room to move should you spend more than budgeted in any given month. So always be careful to allow for surprises and make sure you leave enough money for yourself to have fun from time to time.

Example of reimbursement table (at 10%)

Repayment term 3 years 5 years 10 years

Amount borrowed £10,000.00 £10,000.00 £10,000.00

Total interest repaid £1,543.40 £2,621.60 £5,573.60

Monthly payment £320.65 £210.36 £129.70 respectively

What are my other loan options?

Before taking out a personal loan, you should always study what other options you have open to finance that purchase. If you have savings, it will definitely save you money to use the savings instead of paying interest on the loans. If you are unable to use your savings, other forms of loans include the following.

Overdrafts If you only need money for a relatively short period of time and only occasionally, then you should consider an overdraft service. Overdrafts are not recommended for medium- and long-term loans.

Credit card. Credit cards are another excellent form of short-term loans. If you just need a little help once in a while, credit cards can be very useful and flexible. Most cards also offer cash back, 0% balance transfers for the first six months, or low introductory rates. The typically higher APR of credit cards after the “offer” period expires means they are not as profitable as personal loans beyond the short term.
Re Mortgage. Another option for homeowners is to remortgage their homes to unlock the equity in the property, and with the significant growth in home values ​​in recent years, most people now have significant equity in their home. Interest rates for this type of loan are typically low, but it’s worth remembering that you could be paying off your mortgage well into your previously planned retirement.

Should I go for a secured or unsecured loan?

Personal loans can be secured or unsecured. A secured loan is secured by a major asset, usually the borrower’s home. They are cheaper than unsecured loans, but if you continually default (loan contract default), you risk losing your home, as the lender can repossess and sell it to pay off your debt, although this is often a last resort for most lenders. Secured loans are commonly used when large sums of money are borrowed over a long period of time.

The other type of personal loan is an unsecured loan. If you don’t have a house or don’t pay a mortgage, you can only get unsecured loans. Unsecured loans are usually available for smaller amounts (£500 – £15,000). These loans are more expensive because they are riskier for the lender, since they cannot repossess their home to recoup the loan if something goes wrong. Of course, unsecured loans are also open to homeowners.

What should I know about interest rates?

In short, the lower the annual percentage rate (APR), the better. However, the amount of interest you pay on a loan depends on your credit score. If you have a good score, then you are a safer bet for the loan company and therefore you can enjoy a lower interest rate. It’s also worth noting that the rates you see advertised are often only available to people with excellent credit scores or who borrow a specific minimum amount.

Another common mistake is to compare loans based on interest rates. The interest rate alone does not provide a complete picture, since it does not include all fees. However, help is available in the form of the Annual Percentage Rate, or APR, which is a calculation that allows consumers to evaluate and compare the cost of loans. APR takes into account both the interest rate you pay and any other fees charged by the loan provider. It also discusses when and how often interest and fees must be paid. So be sure to compare APRs when shopping for the best deal, and not the advertised interest rate.

How do I find the best loan company or loan broker?

Once you’ve answered all the other questions, you’re ready to start looking for the best value loan for your circumstances. Unless you get lucky the first time around, the only way to get the best loan is to do just that, shop around and compare rates. This is usually time consuming but is often worth it as the difference from one lender to another is often in the hundreds. Loan brokers claim to do the searching for you, but they are not necessarily the cheapest and sometimes have a high fee, so be sure to check many companies yourself.

It’s also worth remembering that the cheapest loan companies are not always the best. So go with a company you feel you can trust, even if it costs you a little more. Some of the smaller, less ethical companies will provide a lower level of customer service and possibly charge more than some of the more established lenders who have brands to protect.

So go ahead and get the best loan you can find. Good luck.