A Beginners' Guide to Personal or Unsecured Loans

Throughout your life there may be times when you do not possess the cash you need. From buying your first car or furnishing your house to paying off other debts, a personal loan is a quick and easy way to gain the extra capital that you need. However, as with all loans, there is a lot you need to know in order to pick the most suitable package for you.

What Is a Personal or Unsecured Loan?

A personal loan is a sum of money that is borrowed from a lender (usually a bank or building society). You will normally receive a lump sum in your account and you will have to pay the financial institution back in regular payments over a pre-agreed time period. A personal loan is ‘unsecured’, which means the lender does not have the ability to repossess one of your assets (such as a house or a car) if you do not meet the repayments. The downside is you will not be able to borrow as much money as you would with a secured loan.

As with all loans, you will pay back the borrowed amount with the addition of any interest (a percentage increase in the value of the loan), so the faster you make your repayments the better.

What Should I Consider Before Taking Out a Personal Loan?

Firstly, you need to make a reasonable estimate as to how much you can afford to pay back each month. If it is going to take you more than fifteen years to pay back the amount that you need, a personal loan might not be the right loan for you.

Make a conservative guess of how much money are going to need to borrow, in this case ‘better safe than sorry’ is not a good approach because any surplus of the loan you have not used will still cost you in interest.

Ask yourself exactly what you are looking for in a loan and why you need it. If you are planning to use it to pay off all of your other debts (and therefore ‘consolidate’), a consolidation loan is a special type of service that is designed for your needs. It might be that you would rather have the convenience of borrowing on a credit card than find the very lowest interest rate on the market.

Finding the Right Lender

You should take your time when you are looking for a loan provider. Finding the best package is important, and you may have to ask advisors to explain their services in more detail. Remember that if you don’t find the right deal for you on the high-street, you can always use the internet to search for the qualities that you need.