The UK is a nation of debtors. It is estimated that 15 million people in the UK are struggling with personal debt, while in 2004 some 46,000 people filed for bankruptcy with personal debts running at an average of more than £50,000. Despite these figures though, we continue to borrow on loans and finance agreements, mainly because it is still very cheap to do so.



Competitive personal loans rates

With the Internet making personal loans more accessible it is now easier than ever to apply for a personal loan. Just a quick glance online reveals that adverts for personal loans are everywhere. In fact, the competition between lenders is so fierce that many personal loans now come with added benefits such as discounted interest rates, air miles and even free insurance products to entice customers to choose a particular loan.

Loans companies too are relaxing their lending criteria, opening up personal loans to people who they may not have been willing to consider some five or ten years ago. Adding to the incentives for the borrower to apply for loans is the fact that the base interest rate has maintained a relatively steady course over the past few years, and looks set not to increase dramatically over the next year or so either. All in all, this combination of factors has fuelled the personal loans market, pushing the nation's total debt past the £1 trillion mark for the first time in history.

Choices in the personal loans market

When taking out a personal loan, borrowers are confronted with a plethora of offers from lenders. These personal loan offers are essentially divided into two categories - unsecured loans and secured loans.

Unsecured personal loan products are available to homeowners, tenants, and people living with their parents. The borrower can normally apply for loans of between £1000 and £25000 without the need to commit to any collateral on the loan. Fixed interest rates from as low as 5.7% are currently available on some loans, however the rate is normally subject to a high credit score. For people with a less than ideal credit score, a higher APR than advertised may be offered on the personal loan.

Secured personal loan products on the other hand are more in the domain of the homeowner. This is because collateral is required against the personal loan, so should the borrower default on the personal loan repayments then the lender can repossess the borrower's home to recoup their losses. Secured loans of up to £100,000 are available from many lenders, the limit on how much can be borrowed being dictated by the equity in the homeowner's property. Overall, secured loans have lower interest rates than unsecured loans.

Whichever type of personal loan you decide upon, you must be confident in your ability to pay back the loan. If you are unable to meet your personal loan repayments then you will attract a bad credit rating making it very expensive for you to obtain credit in the future. If you are a homeowner, you could also lose your home.