Personal Loans – Things You Should Know
A personal loan is the one in which you borrow a big amount from a lender, who can be a bank or any financial organization or person, and you have to repay it with interest, after a decided period which normally ranges from 6 months to 10 years. Let’s know more about personal loan.
Types of Personal Loans
Two major types of personal loans are secured and unsecured.
Secured Personal Loan: A secured personal loan is given against your assets, normally your property. Therefore it is commonly known as homeowner loan. If you fail to repay this type of loan, your lender may force you to sell your asset to get their payment. That way, car loan can also be called as a secured loan, because your lender gives you the loan against the car you want to buy.
Unsecured Personal Loan: Unsecured personal loan is not given against any of your belongings or property. Mostly an unsecured loan ranges from £5,000 to £25,000. If you shop around, you can get smaller loans too. But if you need loans that range into some hundreds of pounds and not thousands, you can get better borrowing options.
When your requirement of loan is over £25,000, you will have to borrow a secured loan. You will also have to have adequate equity in your asset to secure the loan.
Rate of Interest
The annual percentage rate (APR) may not be the same when you apply for the loan. Unless your lender offers a “one-size-fits-all” type of interest rate, many factors like the amount you want to borrow, for how long and your financial and personal position will affect the rate of interest. In short, you have to check if the rate of interest is fixed or varying. If it is fixed, the amount you have to pay per month for the term of the loan will be the same, whereas a variable rate will change, normally as per the rate based on the Bank of England, in the UK. This means if those rates are falling, you will be happy and if they go up, you will have to worry.
The period of repayment is often fixed and the longer it is, the more interest you will pay. So, choose the shortest period possible.
These days flexible loans are becoming popular. These loans allow you to borrow and repay at will, but their rates of interest are usually remarkably higher than that of the traditional loans.
If any of your repayment is skipped, the lender will mark your credit file with the default. When you try to get a loan elsewhere, number of these defaults may affect your chances of getting a loan. The more your defaults, the fewer are your chances to get the loan.
GB Loans offer a comprehensive guide to various types of loans so that you can take an educated decision while planning for a loan.