What is a Personal Loan?
A personal loan is a loan that is made to you as an individual and not to a company or other organisation and is used for your own personal use. For example to buy a car or a new Sofa. Secured and Unsecured Loans are the two most common types of personal loan.
As the name suggests, a secured loan is where the money you borrow is secured against something as security in case you are unable to repay the loan. These loans are typically for larger amounts of money and the security more often than not is your home.
In return for this security you are likely to be charged a lower rate of interest as the loan provider has a lower risk of not getting their money back. Basically they have the right to repossess the goods (or your home) if you are unable to make the monthly payments.
Unsecured loans require no form of security and so usually have a higher rate of interest to reflect the additional risk the loan provider is taking. Often the rate of interest charged is directly related to your personal credit score.
If you fail to make the repayments, the loan provider may take you to court to get their money back and in doing so, damage your credit rating.
How much can I borrow?
This will depend on your own personal circumstances, how much you wish to borrow and for what purpose. Usually personal loans range between £1,000 and £25,000, with larger loans available for home owners who are willing to use their property as security.
The loan company will check your credit score and your current outgoings to assess whether they believe you can afford the repayments. Don’t forget this is your loan. Be careful not to agree to an amount just because the loan provider thinks you can afford it. It’s your responsibility to repay the loan so you need to be comfortable with the monthly repayments.