Choosing a personal loans

BBC News explains the ins and outs of choosing a personal loan.

Mon, 24 Sep 2007

Taking out a personal loans is the standard way of borrowing money from a bank, building society or specialist loan company.
You can usually borrow up to £15,000 for anywhere between six months and 10 years depending on the health of your finances.
Loans can be secured or unsecured. A secured loan is one that is tied to your house - which means you might have to sell your home if you can't keep up with repayments.

Unsecured loans are not tied into anything, but if you default on your repayments you could end up being credit blacklisted. This could prevent you taking out new credit cards, a mortgage or even taking advantage of an interest-free deal in a shop.

Making comparisons

To get the best deal, shop around. In general, the more you borrow, the lower the interest rate will be, but rates vary from around 7% up to 20%.

You don't have to go to a traditional bank or building society, many good deals are offered through supermarkets, so shop around.
Be careful when comparing products as lenders calculate the annual percentage rate (APR) in different ways. Loans for specific items such as new cars are also available, often with lower interest rates.

When comparing APRs, make sure that you're comparing like with like. Don't pay attention to the monthly interest rates advertised by shops - these are always lower than the annual rate and can mislead you into thinking you've got a better deal than you really have.

Repayments

Loans are repaid in monthly installments over an agreed period. This amount of time is usually fixed and if you want to pay off the loan earlier you might have to pay a penalty. The longer the repayment period, the more interest you will pay, so go for the shortest one you can manage.

Flexible loans, which let you pay back the money whenever you want, are becoming more common but the interest rate charged is often higher.

The most important thing is to make sure you know exactly what the monthly payments will be, and how much you will pay back in total.

Remember that if your bank or building society turns down your loan application, it is obliged to explain the main reasons for doing so.

Source: http://news.bbc.co.uk/2/hi/business/2962438.stm