Even savvy savers can find themselves in a spot of financial bother. All that it takes is a reduction in your working hours, the closure of your workplace, or a sudden and unexpected bill, and suddenly the money you’ve saved begins to dwindle.
When this happens, there is no shame in looking to others for help. Borrowing is not a mark of failure, but simply a means of securing funds that you don’t currently have. Most people who apply for loans are actually financially stable; they simply lack the capital they require to make a particular purchase or start a project.
However, borrowing is not something you should jump into without first understanding how it works. You have lots of options open to you, and one of the most popular is personal loans. To help you out, here’s a quick guide to aid your understanding…
The Cost
Personal loans are a very popular option amongst those looking to borrow, and one of the main reasons for this is their cost effectiveness. For those who wish to borrow a lump sum, they’re usually cheaper than a credit card, and allow you to take out more than you could using an overdraft facility.
This doesn’t mean that there are no charges, however. Usually, you’ll be able to borrow a maximum of around £25,000, and you’ll need to be able to pay this back plus interest. The exact rate that this will be set at will vary from company to company, and will also be influenced by factors like longevity, amount, and loan type.
You’ll know exactly how much annual percentage rate (APR) you need to pay right from the outset, as companies are legally obliged to include this in their adverts. They do have the power to alter this based on your specific application, but this will be made clear to you before you accept the terms. This means that when you’re looking, you should search for those providers with the lowest APR, as this will cheapen the overall cost of your loan significantly.
The Risk
Loans can generally be split into two categories: secured and unsecured. Personal loans fall into the latter. It’s important to understand the differences between them, as these impact the penalty should you default on your loan repayments.
Secured loans work by using your property as security. This means that if you cannot meet your monthly payments, you could stand to lose your home. This makes many people shy away from the idea altogether, but it’s worth pointing out that secured loans do have their benefits. As they lower the risk to lenders significantly, terms and prices are often competitive, and this can save you money in the long run.
Unsecured or personal loans, on the other hand, will not place your assets in peril. They do tend to be more costly overall, but despite this, many people prefer their perceived ‘safety’, and will choose to pay a little more in the long run in order to avoid running any excessive risks.
If you’re considering borrowing, could a personal loan be the right choice for you?
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I’m looking for the right type of loan that I can take out in a lump sum, and one of my friends told me that a personal loan might be what I need. It’s good to know that they’re supposed to be easier to borrow in a lump sum than by using a credit card. I like that they’re meant to be cost effective, so I might consider asking for a personal loan so that I can have the money that I need.