Factors to consider in choosing the right personal loan

When there is a need for additional funds, a personal or unsecured loan could be the answer to your problem.

10:50 17 October 2013

You need to consider several factors if you want to choose the right personal loan. To help you make that choice, let us first define what a personal loan is.

It is a loan which is obtained without having to issue collateral and is just based on the credit worthiness of the borrower. Some lenders charge a higher repayment for the first and the last month but this could be negotiated; basically, the monthly repayment should be the same throughout the entire term of the loan. 

• What determines the amount you can borrow?

The amount you can borrow is influenced by your credit score and your suitability to pay the loan. The standard lending for a personal loan is up to £25,000 and this shall be repaid in short term of one to three years depending on your agreement with the lender. Higher loans are usually offered at lower interest rates but you should avoid taking a loan more than what you really need. If you fail to make repayments you could be subjected to a harsh penalty and additional fees which could result in a negative effect to your credit rating.

• Is there a need to take out insurance?

Depending on your suitability, insurance can be added to cover monthly repayments when extraordinary circumstances occur but the option is only limited to some borrowers as self-employed, students and retired individuals are not covered. Thus, if you consider adding insurance coverage, you need to check out the policy to know if you are eligible for it.

• Is it possible to repay the loan early?

It is possible for the loan to be repaid earlier than it is supposed to do if the loan was taken out after February 1st 2011; you won’t be charged a ‘redemption penalty’.

• Advertised rates are applicable to limited applicants

Advertised rates do not apply to all applicants as it still depends on every individual’s credit score. Lenders just advertise possible rates to make it more appealing to the customers.

 

For whatever reason you may need those additional funds, getting a personal loan is often best because you do not have to pledge your house as collateral for the loan. There are numerous options available but you need to determine which one is the right choice for you.