We all know the first step to borrowing a personal loan is to know exactly how much amount is needed and your repayment affordability. Most lenders can offer upto £50,000 in unsecured personal loans, but it may vary from person to person depending on their financial health.
As per some studies, the new generation of Brits have broken the generational chain and started believing in the concept of savings. This new trend is not only good at the individual level but on the societal level too.
Sometimes savings may not be enough to tackle life’s uncertainties. Personal loans come in handy in such emergencies. Here is everything you need to know about personal loans and how to get the best deals in the market.
What is a personal loan?
A personal loan is a type of unsecured loan, meaning no collateral is required. All you require is to have a regular and stable income. Generally, personal loans are not used specifically unless mentioned in the contract so that you can legally use them for a variety of purposes.
Wedding loans, holiday loans, unsecured debt consolidation loan all of these are use specific personal loans. Always remember to understand the contract properly and check the following –
- If you can use some of the use specific personal loan funds to cover other unrelated expenses.
- Late payment charges and early repayment charges
- Total monthly payments and total amount to be repaid
- APR and interest rate
Tip – Do not shy from negotiating for a lower APR and try to get as shorter-term as possible. A shorter-term loan will save you a lot of money in interest.
Different type of personal loans in the UK
The UK has a wide variety of personal loans, each made to suit a specific set of needs for personal loan borrowers. For instance, payday loans are for people who require a small amount for a short period; joint personal loans are for partners who want to share the responsibility and accountability.
Let us look at some of the most used types of personal loans in the UK.
Short term personal loan
Short term personal loans are loans borrowed for less than 12 months. Generally, short term loans are also small amount loan.
Some lenders might think that if you borrow a small amount for a short time, you might be struggling financially, and their money may be at risk, so that they will offer you a higher interest rate.
Other lenders could try to convert you as their long term personal loan customer. You should be clear about your parameters of the loan term, interest rate, and amount to be borrowed and not just accept anything that you are presented with.
Long term personal loan
Long term personal loans are loans borrowed for 12 months or more. Generally, people borrow bigger amounts compared to short term personal loans.
Long term personal loan has low-interest rates because the lender can distribute the cost of lending money in smaller share over longer periods. As always, your credit score and debt to income ratio will also be a major player in the interest rate that you will be offered.
Joint personal loan
Two or more people take a joint personal loan, and the credit score of all the parties involved is taken into consideration. Such types of loans are mostly taken by couples or business partners. If you have a low credit rating, then joint loans could be an easy and almost sure option for you. Your chances of approval will increase if your partner has better financial health.
There are three types of joint personal loans
- Unsecured Joint personal loans
- Secured joint personal loan
- Bank Overdraft ( from a joint bank account)
Debt consolidation loan
Debt consolidation is sure a smart way to manage your debt. A debt consolidation loan is a loan where you borrow a new loan to repay all the other outstanding debts in full. You will be liable to only one lender and will have to make only one repayment in a month, sounds easy, right?
Debt consolidation is made for the purpose of handling unmanageable debt.
For a cherry on top – If you have improved your financial health, you can get a low-interest debt consolidation and save a lot of money on interest.
Some of the best personal loan lenders
Remember not to file multiple applications for the loan in a short time. You can lose 50 points on your credit score. It will be better to use a personal loan comparison website like LoanTube. You can compare multiple lenders and choose your option just by filling one simple application form. Here are a few options where you can apply for a personal loan
- High-street banks
- Building societies
- Credit unions
- Online lenders
- Online loan comparison platforms such as LoanTube
- Dedicated lenders
- Government grants or schemes
Note: Beware of loan sharks, and before sharing any information, always check the FCA authorisation of the lenders and brokers.
An Unsecured personal loan is a great tool to manage your expenses in case of emergencies but make sure you have a solid plan to manage your repayments. Every missed payment can give a hard blow to your credit score. You will lose 80 points for one single missed payment.
Your assets are safe from any risk, but you may be issued a CCJ for default. A CCJ will remain on your report for 6 years even if you have paid the default and will cost you 600 points.
Knowing the above should be enough to understand the importance of making a properly calculated decision when borrowing a loan. Make sure you have a repayment plan and always make your payments on time. If you can follow the repayments properly, a personal loan can also be a great tool to build your credit score. The choice is all yours.