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So why would you take a personal or unsecured loan? Here is a few reasons. Personal loans are simple to apply for often with an instant decision and relatively hassle free. You just need to click into the lenders website (Click to here) fill out the online forms press submit and its as easy as that. The money is often with you in days so you can get out and spend it quickly. Loans can be obtained from£1,000 up to £25,000 and from 1year to 7years (sometimes up to 10years).Personal loans offer the lowest APR's around with fixed monthly payments for the whole term of the loan.
When you're looking for a personal loan there will be one common goal - a good APR. However, there are many factors that you need to take into account when making a personal loan application, some of these are listed here:
Acceptance criteria (some lenders are very strict with missed/late payments)
Price for risk(have you had previous credit problems )
Redemption penalties(the amount you would pay extra if you finished the loan early).
It really doesn't matter how cheap a loan is if your application is declined because you do not fit that particular lender's criteria. The question you need to ask yourself is "Are the cheapest loans always the best"? The simple answer to that is no not always. Some loans are offered at great rates with a high redemption charges. Some have a fantastic repayments until you add on the payment protection’s, the truth is you have to look at the whole package before making a decision.
The Credit Score
Before a loan is offered to you the lender has to "Score" the application and decide what APR you are eligible for. There are many factors which are involved in making this decision these include:
Current and past credit history.
Current employment and income details.
Time in current and previous addresses.
Time on the voters role.
For most lenders the credit score is crucial but each lender will have their own way to score an application so no scorecard is the same. Lenders treat their scorecards with the utmost secrecy and this information is not shared with us.
With this in mind you need to be realistic, and brutally honest with yourself about what you need ,and what your current personal circumstances are. If you have had or are currently having credit problems you may not be able to obtain the ultra low advertised rates. However the lenders that offer these great rates often offer people with a less than perfect credit history loans at a slightly higher APR's. If you are unsuccessful in obtaining a personal loan and you are a home owner a secured loan is often the answer.
Redemption Penalties
As discussed earlier you may have to pay a early redemption charge if you choose to pay the loan earlier than the term agreed. Some but not all lenders charge these you need to weigh up all of your options. You may find it pays to opt for a slightly higher APR with no early settlement charge, than a lower APR with a penalty for paying off the loan before the end of the term.(most people only keep their loan for less than half the agreed term).
Protecting your Payments
This has always been a difficult decision for the borrower. Do I take the risk and not protect my payments against accident sickness and redundancy and get a cheaper payment. Or do I rest easy knowing that my loan payments would be met should the worst happen. The choice is yours do not make the decision lightly read and understand the benefits and exclusions of any cover offered and only take this cover if it truly benefits you (All payment protection insurance is regulated by the FSA ) .
The cost of payment protection insurance varies between lenders, as does the cover. Even if you want to protect your payments you are not obliged to take the policy on offer from the lender. There are what we call stand alone policies that can also cover your mortgage and other credit commitment payments and may prove less costly and offer better protection click here for an example.
Personal loan Charges
A personal loan is a lump sum that you typically borrow from your usual bank, another bank or through a shop where you are buying a large item, such as a car or washing machine. You agree to pay back the loan over a fixed number of years (called the 'term') by making set monthly payments.
There may be an arrangement fee when you take out the loan.
You can usually pay extra for payment protection insurance. This pays your monthly payments for you if you are unable to work because of illness or unemployment. However, check the insurance would cover your type of work (for example, casual working might be excluded) and be aware that there is sometimes a delay of several weeks between making a claim and the policy paying out. You don't have to take out this additional insurance if you don't want to.
You pay interest at a fixed rate on the amount you borrow. All the interest charges throughout the term of the loan and the repayment of the amount borrowed are added together and then divided into equal monthly payments.
You can pay off a personal loan before the end of the term. Often, there will be a charge equal to part of the interest you would have paid had you kept the loan for its full term
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