Personal loans
Personal loans are more suitable for borrowing larger sums over a longer term. Costs vary across lenders and may depend on if the loan is secured or unsecured.
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Secured loan
This means that you have to have an asset, for example a home or car that the loan can be secured against. So, if you can’t repay the loan, the lender can sell your asset to get its money back. You may be charged less interest on a secured loan but there may be extra fees. -
Unsecured loan
The lender doesn’t require that your home or car is used to guarantee the loan, but legally you must still repay the loan. The lender can take court action against you to get its money back, and this could involve substantial costs and affect your credit rating. In extreme cases it could mean you losing your home.
How do they work?
You borrow a fixed amount and usually have to repay it in fixed instalments over a set period (the term). The interest you pay is also usually fixed. Rates for secured loans are usually lower but there could be extra fees, and of course you could be putting your home at risk.
Important points to check
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Charges for early repayment
Ask whether there are any penalties if you choose to pay the loan off early. For example, check how much interest you will be expected to pay with your final payment and any other charges that may be due. -
Charges for late payments
Most lenders ask you to make your monthly payments by direct debit from your bank account. This way they’ll be sure to get their money on time. If you’re late with your payments you’ll be charged by your bank – find out from your bank how much the costs are.