Loans - This Time Its Personal

by : J Tillotson

You don't need to be a homeowner to get a loan. Personal loans are unsecured, meaning you don't need to have property as collateral. With a personal loan you don't have the immediate risk of losing your home hanging over your head.

You can use a personal loans for a variety of purposes. Weddings, holidays, re-decorating the house, and Christmas are all common reasons why people take out personal loans.

Of course, not everyone will be able to get a personal loan. Whether lenders will approve you depends largely on your credit rating. This also determines the APR you get if you are offered a loan.

The amount you can borrow will vary depending on your credit rating too, as well as your income, your outgoings, and which lender you apply with. Personal loans tend to be for smaller amounts than secured loans, and taken out over a shorter period of time. It's best to take out a personal loan over as short a period as you can afford, to cut down on the amount of interest you will end up paying. But compare the total amount payable with the monthly repayments to see if you really will benefit.

For example, a ?4000 loan taken out over 5 years with an APR of 6.9% will generate interest of ?740.97, and monthly repayments of ?79.02. The same loan taken over 4 years will generate ?588.78 interest, which is a saving of ?152.19, but you'll be paying an extra ?16.58 per month. Over a year that is an extra ?198.96 in payments - more than the extra interest you'd pay for that year. Of course, if you can afford the extra on your repayments and you don't really mind about the total amount you'd pay, then a shorter term means you'd be clear of the debt quicker. So take all this into account when applying for a personal loan.

Above all, only take out personal loans if you're sure you can afford the repayments, and never borrow more than you need unless you plan on investing the extra amount in a high-interest account to help with the repayments. Personal loans are not a quick cash fix, they are a serious financial commitment which can play havoc with future credit if they are not paid.