Personal Loans Guide
Banks, building societies and other lending institutions, covering a range of amounts and repayment options, offer personal loans today. To find the personal loan best suited to your needs, you must check out various deals on the parameters of APR, monthly installment and repayment period.
Personal loans in the UK start from around £500 and go up to around £25,000, varying between lending institution and products. There are mainly two types of personal loans- secured (requiring security for the debt) and unsecured. Unsecured loans are usually not available for speculative or business purposes. Depending upon the amount, the repayment time of personal loans ranges from six months to 7-10 years.
Your first stop for securing a personal loan should be banks where you already hold an account as many banks in the UK offer lower interests to existing customers. Getting a loan can prove difficult if you: have a bad credit history, have frequently changed addresses, are self-employed, or have no previous credit history. There are lenders who will help you out in these circumstances, but of course at a price!
The single most important factor for choosing a personal loan is the APR (Annual Percentage Rate). Interest rates are quoted in different ways and it is important to understand the different terms to find the best deal:
1. Fixed Interest- A fixed interest rate remains the same throughout the repayment period. This means that your monthly installments also remain the same.
2. Variable Interest- A variable interest rate may rise and fall according to the bank base rate which results in changing EMI.
3. Set Interest- A set interest rate is given to all successful applicants regardless of the risks involved, loan amount and repayment tenure.
4. Typical Interest- A typical interest rate depends on loan amount, repayment term, and individual circumstances.
In addition to the APR, you should consider the additional costs (like redemption penalty and upfront fees) present in the small print, before deciding on the personal loan. The second consideration is the EMI. Personal loans are payable on a monthly basis with some lenders permitting lump sum or over-payments. In the case of prepayment, you are given the options of reduction in either EMI or tenure. Go for reduction in tenure because a longer tenure translates into more interest.
Tip: Check out the APR, EMI, tenure, security options and additional costs to find the best personal loan.
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