Guide to Personal Loans
You can take out a Personal Loan for a number of reasons
and from a number of personal loan companies. How much you can borrow will
depend on the lender and your personal circumstances such as your income,
ability to repay and any previous credit problems you may have had.
If you are considering taking out a Personal Loan then it is important that you
always read the small print carefully or else you may find yourself with hidden
charges or penalties that you hadn't realized you would incur. The current
Personal Loan market is very competitive with a great number of lenders willing
to lend people money. Therefore you should shop around to see what the various
competitors are offering, but always check the small print to make sure that you
don't get penalized by hidden charges.
"Typical APR" Explained
Often when you see a Personal Loan advertised you see it offers "typical
APR". This is the headline interest rate figure that the lender will quote
when advertising a loan but this may not be the rate you get for your
repayments.
This is because that many lenders calculate the Annual Percentage Rate (APR)
based on risk based pricing. This means that they consider each individual
person's personal circumstances before deciding on what rate to offer. Although
a lender has to offer this typical rate to 66% of people that successfully apply
for a loan, it is possible that you won't get this rate.
For example, if you have a bad credit rating you may find that your APR is
higher and you end up having to pay back more interest because you are seen as
more of a risk of not repaying the loan. At the same time, a good credit rating
could lead to a reduced APR because you are seen as less of a risk.
Early Repayment Charges
You might think that loan companies would appreciate people paying off their
loans early, however this is not the case. Loan companies prefer you to stick
the planned agreement because they make their money off the interest they charge
you for taking out the loan. If you pay off the loan early they will lose some
of the interest and they may charge you an early repayment fee. The actual early
repayment charge will depend on when you choose to pay off your Personal Loan.
The earlier in the agreement you decide to pay it off, the higher the charge
will be.
Not all companies charge an early repayment fee so make sure you check the small
print to avoid incurring one unnecessarily.
Payment Protection Insurance (PPI)
When you are taking out a Personal Loan you may be offered payment protection
insurance (PPI). This in effect covers you should you have problems repaying the
loan because of circumstances out of your control. For example you lose your job
or become ill forcing you to take time off work.
Although such cover may appear appealing it could prove quite expensive in the
long-run. As with all Personal Loans, you should always check the small print to
see what circumstances you are covered for, and, perhaps, more importantly, what
circumstances you are not covered for.
Another thing to look out for is when lenders add the cost of a PPI to the
Personal Loan itself at the outset meaning that you end up paying the interest
on top of the cover as well for the Personal Loan itself.
PPI is available from other companies other than just the one you take your
Personal Loan out with so it may be worth considering one of these as they often
offer it at a reduced rate to what your lender will charge.
Article Source:
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The Loans
Website offers information and resources about the various types of loan
that are available. It helps you research different loans to find the best one
for you and your circumstances. For more information please visit www.loanswebsite.org.uk.
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