Thursday, 23 July 2009

Choosing the right personal loan for you

posted by debts.org at 02:09

Choosing the right personal loan to suit your needs can help resolve your debt problems and improve your finances. Choosing the wrong personal loan can plunge you deeper into debt.

What is a personal loan?

Taking out a personal loan is the normal way of borrowing money from a building society, a bank or a loan company. You can normally borrow up to £20,000 for up to ten years, depending on your finances.

What are secured and unsecured loans?

A secured loan is one that is linked to your house. In other words, if you don´t keep up the repayments your home could be at risk. You may be offered a cheaper interest rate on this type of loan but if you think there is any chance you may default on payments, don´t take the risk of losing your home. An unsecured loan is not tied to anything, but if you default on payments you will end up with a bad credit rating. This could result in your being prevented from taking out any more credit including mortgage, credit cards etc., You could also be prevented from taking advantage of any interest-free deals in a shop.

Compare personal loans

Make sure you shop around before you decide on the best personal loan for you. The more you borrow, generally, the lower the interest rate will be. Rates vary from around 5% up to 20%. Remember that personal loans are no longer the domain of banks and building societies, and you can get better deals through supermarkets. Lenders also calculate the Annual Percentage Rate (APR) in different ways, so don´t automatically assume, loans with the same APR will work out exactly the same. Loans for specific items such as cars are also available, and often with lower interest rates. When comparing APRs, make sure you are comparing like for like, and always ignore monthly interest rates, advertised in shops, as these are always lower than the annual rate you will be expected to pay.

Loan repayments to avoid debt

Loans are repaid in monthly instalments over an agreed period of time. You could have to pay a penalty if you want to pay off the loan earlier, so beware of the small print. Remember, the longer the repayment period, the more interest you will have to pay, so always go for the shortest repayment time you can manage. Don´t increase your debt problems by taking out a loan over a short period of time that you will find impossible to pay back so quickly.Flexible loans to reduce debt problems

Flexible loans allow you to pay back the money whenever you want, so if you suddenly come into money or have a wage increase, you can pay back more with no penalty. Interest rates on a flexible loan may be higher, so always check exactly how much you will be expected to pay back as a minimum amount. If a bank or building society does turn down your loan application, they are obliged to explain the reasons why.

If you are suffering personal debt problems, or struggling financially, and have been refused a loan, contact debts.org who can help get your finances back on track. Our specially trained and friendly staff will give you free guidance and advice to find the best debt solution options for you. Millions of people suffer debt problems every year in the UK, and we are here to help reduce your debts, with a debt management plan or an independent voluntary arrangement to give you a debt free future.

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