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Should I Take a Personal Loan?

If you’re in need of borrowing money, be it to finance essential home renovations or a new vehicle, or even consolidate existing debt Personal loans could be a good option.

Personal loans generally allow you to take out more money than you’re allowed to do through a credit card and you’re able to repay the amount over a specific time period with fixed monthly payments. However, they’re not the ideal choice for everyone. We review the pros and cons of personal loans to determine whether they’re a good fit for you.

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How do I get a loan for personal use?

A personal loan permits you to take out an amount in one lump to be paid back over a specific period of time generally between 1 to seven years. You are able to get a loan from as little as £1,000 to £15,000 however, some lenders may extend the loan up to £25,000. The best rates of interest are usually for sums from £7,500 and up However, you’ll generally require a high credit score to be able to avail the most competitive offers.

The loan amount will be repaid with fixed monthly installments, which makes it much easier to budget. However, this means that you’ll have to make sure that you have enough money to pay for your loan every month.

The personal loans can also be referred to as unsecure loans, meaning that they don’t need to be secured by something like your home, like a secured loan would be. They are therefore less risk because there isn’t any chance of losing your home in the event that you cannot pay your loan on time.

Personal loans: pros and cons

There are many advantages to personal loans:

Fixed monthly payments. The amount you pay will not change over the duration of the contract, which can simplify your life for those on a tight budget.

The option of when you will repay the loan. You’ll be able to choose the length of the credit (usually between 1 to 7 years) when you apply for it – the longer the loan term will be, the less monthly payments, but you’ll have to pay more in interest over the course of.

High-interest rates. Personal loan APRs are attractive, especially on amounts of more than £7,500.

The option to borrow a greater amount. It is common to get more cash than you could by using a credit card which is useful when you’re making costly home improvement projects, for example.

Good for debt consolidation. Personal loans can be the ideal method of consolidating loans into one affordable repayment through a single lender. If you opt for an option with a lower interest and you save money, too.

It is not tied to any asset. Personal loans are not secured, so you don’t need to take assets like your home to secure.

The cons of personal loans

There are disadvantages to consider too So you’ll have to weigh these up against the benefits

Higher interest rates for smaller sums. If you need to take out a loan of between £2,000 and £3, interest rates are likely to be lower as compared to borrowing the amount of £7500 and more. This can cause you to consider taking more loans that you’re not able to pay back.

Repayments that are not flexible. Contrary to credit cards that allows you to pay a specific amount every month, the repayments on personal loans are set, meaning you’ll have to make sure you have the funds to pay the entire amount every month.

There is a chance that you will not receive the interest rate you are promised. The loan provider must offer an advertised rate of annual percentage (APR) for at minimum 51% of applicants who are successful However, those with 49% remaining may receive a better rate. The higher rates are typically provided to those who have lower credit scores, and the best rates are only available to those with excellent credit.

The early repayment fee can be a problem. If you pay off your loan in advance, you could be liable for an early repayment penalty which could be in the range of one to two months of interest.

There aren’t any 0% interest deals. Contrary to some credit cards personal loans don’t offer no 0% interest that means you’ll have to be paying interest.