Choosing a UK Personal Loan

Written by lifang January 09, 2008 11:18

Making the decision to take out an unsecured personal loan is an important one for several reasons. Whatever you're using the money for is likely to be an important financial investment, whether it's home improvements, a car, debt consolidation or even a family holiday you're planning to invest a significant amount of money in it.

Naturally one of the benefits of a personal loan is you can generally use the money for whatever you want, therefore you may not fall into any of the above categories. Additionally it's a financial commitment that will last several years and you want to make sure you get value for money and good service over the course of that time. It's important to spend as much time planning for and researching the best product to suit your circumstances as it is planning how you're going to spend the money.

Starting Comparisons of Loans

The first thing to consider is whether an unsecured personal loan is what you are actually looking for. Personal loans are in most ways a flexible product, as previously stated you can generally use them for any purpose. If the amount you plan to borrow is smaller than would generally qualify for low APR deals or you wish some flexibility in how much you repay and when it may be worth considering borrowing against a credit card or overdraft instead. Bear in mind that while personal loans usually have a more strictly fixed repayment schedule than credit cards or overdrafts, this can be helpful in planning your financial commitments. Again if the amount you wish to borrow is quite large you will probably have to consider a secured loan, which means putting your home or other assets up as security and can effectively be seen as a second mortgage.

Length of Repayments

Once you've decided that an unsecured personal loan is the most appropriate form of finance for your circumstances the most important thing to consider before you even start looking at what loan deals are available is how much you wish to borrow. Most loan deals will apply to loans of a certain amount and this can vary between providers. Some providers such as Alliance and Leicester, Cahoot and Lombard Direct offer their typical APR to loans over £5,000 and others such as Bank of Scotland offer their best APR on loans of £7,000, Tesco have raised this to £7,500. Once you've ascertained how much you wish to borrow you can identify which loan companies will provide the best deal. While considering how much you wish to borrow its also worthwhile to consider things like how long a period you wish to repay the loan over as different loan companies may provide you with different repayment periods. Two examples are AA who offer repayment periods of between 1 and 5 years and Tesco who offer repayment periods of between 1 and 10 years.

Personal Circumstances

Obviously everyone's personal finance circumstances are different and this will have a bearing on what loan company to chose when applying for a personal loan. Some companies will be quite selective about who they lend money too, whereas others may be more flexible but in turn charge higher rates of interest. A poor credit record, being self-employed or simply not having much of a credit record for loan companies to judge you against can affect which companies will be open to lending you money and possibly also the rate of APR they offer you.

Therefore it's important to bear this in mind and shop around for a reputable company with a good rate of APR if you find yourself in a less than advantageous situation when it comes to applying for a loan. Additionally if you feel you have been unfairly turned down for a personal loan you can ask why and while they are not obliged to divulge the reasons behind their decision most companies will be forthcoming. It may also be worthwhile to investigate your credit record to ascertain if everything is in order or if maybe poor credit is related to something unconnected like a previous tenant.