Contents

What is a personal loan? What do you need?

Which type of personal loan?

Shopping around for a personal loan

Applying for your personal loan

Frequently Asked Questions

Where can I go to get more help?

What is a personal loan?

How does a personal loan work? A lender such as a Bank, Building Society or other financial company agrees to lend you a sum of money - anything from £500 to £25,000 and upwards, and you agree to pay that amount back plus interest, using regular payments over a pre-determined period of time, from between six months and twenty five years. Your loan repayment amounts gradually repay both the amount you've borrowed (the principle) and the interest.

Banks and other lenders will usually need a reason why you require the loan so that they can provide products that suit you. Most personal loans can be used for any legitimate purpose.

You need to be 18 years old or over to

qualify for a personal loan.

Some examples of when you might need a Personal loan are:

a holiday a wedding home improvements to repay other debts a car

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What do you need? You know that you need that extra bit of cash, and you've decided on a personal loan, so now you need to know the best way to go about it!!

Before approaching a lender try to work out exactly how much you need to borrow and for how long. Often the longer the term of a loan, the lower the interest you pay, but, it may be cheaper to repay the loan quicker at a slightly higher rate, use the table below to help work out what you need:

Do you know.... If not, then.... how much you need to borrow?

Obtain quotations and estimates for the item(s) you want the loan for

how much the loan will cost overall including interest?

Use our calculator to work out the total cost of your loan using different interest rates

how long you need to pay the loan back?

Use our calculator to work out how long it might take to repay your loan

how much you can afford each week, fortnight or month to repay the loan?

Use our calculator to work out what your repayments might be

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Which type of personal loan? Despite the growing number of money lenders around, there are really only two types of personal loan on the market, secured and unsecured. The table below compares the features and common uses of secured and unsecured loans: Secured Loan Unsecured Loan Description An asset, usually a property is

used to guarantee the loan. Approval is primarily based on the value of your property rather than your credit history. Failure to keep up your regular payments could result in the lender selling the asset to repay the loan. This type of loan is also known as a home owner loan.

An unsecured loan is not secured against an asset or property. Approval is primarily based on your credit history, however, If you own a property you may get preferential terms. Failure to keep up regular payments could affect your credit rating. This is the most common type of personal loan.

Borrowing features

larger amounts up to £50,000+

flexible repayment plans longer payment terms

up to 25 yrs available if self

employed poor credit history

and/or County Court judgements not excluded

lower interest rates fixed or variable interest

rates

smaller amounts up to £25,000

less flexible repayment plans

shorter repayment terms around 5 to 6 yrs

more detailed credit checks

don't have to own a property

higher interest rates fixed interest rates

Common uses

Home improvements Debt consolidation Car Loans Larger borrowing over a

longer period

Holiday Household goods

purchases Wedding Smaller borrowing over

a shorter period

Note: If you own a property and you want a personal loan for home improvements seek financial advice as it might be more appropriate for you to re-mortgage and raise the funds that way instead.

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Shopping around for a personal loan Knowing how much you need to borrow, for how long, and whether a secured or unsecured loan is the most appropriate for you, will make looking for a personal loan easier. There are so many companies offering loans it can seem difficult to know where to start, so focus on lenders who offer the type of loan you're after. The main types of lenders in the marketplace are:

Banks Building societies High street and online finance companies Loan brokers Telephone based lenders

It is important to shop around and compare interest rates and loan products to make sure you get the right loan for you. The following resources can provide a good place to start:

high street advertising magazines newspapers

In all cases lenders are obliged under the terms of the Banking Code (2008) to provide a Summary Box of information outlining applicable charges and interest rates for their personal loan products, so consumers can make an informed decision before they take up an offer.

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Here's an example of a summary box for an unsecured personal loan:

Summary Box Term Unsecured personal loan example

APR (Annual Percentage Rate)

Typical 8.0% APR If successful, the interest rate you will pay is based on your personal circumstances and the amount you choose to borrow.

Interest rate ranges

Loan size range £7,500 -

14,950 £

From %

8.0%

To

16.0%

Representative APR

8.0%

Interest charging information

The interest charged is added to the total loan at the beginning of the loan term. The charge is calculated by applying the agreed rate to the loan balance on the basis that you will be paying part of the loan each month, over the chosen term. This results in a larger amount of interest being attributed in the early months of the agreement than in the later months. The interest rate applicable to your agreement will be fixed for the life of the loan.

Repayment information

The first monthly payment is payable 30 days from the date you receive the loan funds, unless you chose to change the monthly payment date. Other monthly payments are payable on the same date each month until the loan and all the interest and any other sums due are repaid. Payment holidays and deferred payments at the start of the loan are not permitted.

Repayment period 12 - 60 months in monthly intervals. Amount of loan available £7,500 - £14,950 in £50 intervals Application/arrangement fee Not applicable

Other fees Not applicable

Default fees Late Payment Fee £15 Monthly Arrears Fee £20 Default Notice £40

Early settlement

We will determine your settlement date and any rebate of interest to which you are entitled in accordance with the Consumer Credit (Early Settlement) Regulations 2004. If the agreement is for a term of one year or more, we may charge you one month’s interest to cover the cost of setting up your loan.

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Most personal loan interest rates are advertised as APRs, however, not all lenders calculate their APR the same way, so for a true comparison look for the TAR (Total Amount Repayable) and/or the monthly repayment amounts to see exactly what the loan will cost you. 'Best-buy' tables published in the media are helpful in that they compare products whose APR rates are based on the same terms and conditions.

It also pays to find out about differing lending criteria and additional loan features by phoning or emailing lenders, some good questions to ask are:

Can you take repayment holidays? Are there any fees if you want to make additional

payments onto the loan? What would the initial payment be and what will the

regular payment amounts be? What will the total cost of the loan be, including

interest and charges? Do they offer loan repayment protection

insurance in case you are unable to make your repayments in the event of sickness or loss of income due to redundancy, and if so how much will it be?

Most lenders including high street Banks have online sites you can use to search and compare personal loan products. Alternatively if you don't know which lender you want to use, just doing a search from your home page, for example typing in "unsecured personal loans" will bring up several links for you to investigate. Doing a search online for "personal loan brokers" will also provide several links to online companies who specialise in helping people to get personal loans.

There are also personal loan comparison sites available which enable you to type in what you need and they generate the best loan products for your circumstances. You may also get an indication of the likelihood of being approved in some cases. We've included links to some independent personal loan comparison sites here for you to start your search:

www.beatthatquote.com/loans Compare Loans: Personal Loans, Secured Loans, Consolidation Loans.

www.moneyextra.com/loans/ Compare unsecured, secured and consolidation loans.

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Applying for your personal loan

So once you have decided on a loan type and lender, it is now down to the actual loan application!

Make sure you have all your personal information handy including your bank account details before you start. Find out from the lender exactly what type of documentation they need from you, in most cases all lenders will require you to:

provide some form of identification provide proof of your home address (up to the

previous 3 years) provide evidence of your income and/or career

history set up a Direct Debit for your regular payments.

As part of the application process lenders will also check your credit score, this is a score that is given to you based on your past credit history. If you want to find out what your credit score is for yourself, you can do this at www.experian.co.uk

An important thing to remember is to only make one loan

application at a time as it can adversely affect your credit score if you have multiple applications being checked at the same time.

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In addition to the general application requirements above, the table below outlines what to expect for different types of lenders:

Applying for a personal loan via.... What to expect......

High Street Banks, Building Societies and Finance Companies

After making an appointment, a specialist loans advisor will take you through the application process step by step. You may get a decision on the spot but it can take 24 hours.

Telephone

When you make the phone call your information will be taken over a recorded call, a paper copy of the application will then be forwarded to you for signing. You may get a decision over the phone, but more likely will need to wait until the signed form has been returned.

Online loan site

You can compare lenders in your own time online and then use their online application tools and forms, some online lenders promise instant decisions. Secure websites have a yellow padlock or key icon in the bottom right-hand corner of the page.

Loan broker

After an initial meeting, email or phone call the loan broker will search the market for the best deal for you and usually assist with the application. You may incur a charge either up front or one added to your monthly repayment. It is important that you know exactly how much this is. Also check whether the broker is tied to particular lenders or whether they are independent as this may affect the type of offers they provide.

Once the lender has all the information they require, including your signature confirming acceptance of the loan terms, the loan amount will be credited to your bank account sometimes within 24 hours. Remember to keep copies of the loan documents you have signed and any related loan repayment protection insurance documents in a safe place for future reference. Make a note of the date when the first repayment is due and check your Direct Debit is working to avoid late payment charges. Ensure you make all subsequent repayments on time to avoid ongoing penalty charges and ensure your credit rating won't be negatively affected.

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FAQs personal loans

Here are some frequently asked questions and their answers which may assist:

What does APR mean?

A:APR stands for Annual Percentage Rate. This is the interest rate that will be applied to your personal loan, it is calculated as a percentage of what you borrow and charged as an annual interest charge. So an APR of 8% means you pay £8.00 per year, for every £100 borrowed. This is an important charge you should be aware of when selecting a personal loan as the lower the APR, the less it will cost you. The actual APR you may be offered is dependent on the amount you borrow and your credit history, and may change during the term of the loan depending on whether the interest rate is fixed or variable.

What is a secured personal loan?

A: A secured loan means that your home is used as security against the loan. Secured loans tend to be easier to obtain, because you are guaranteeing repayments against the value of your property, and the amount you are allowed to borrow is usually much higher. This can be useful if you have a poor credit history or county court judgements against you and applications for other types of loans have already been turned down. Before taking out a secured loan it is worth talking to an independent financial advisor to get an overview of other borrowing options. You might find that it makes better financial sense to re-mortgage your property, or take out a home equity loan.

What is an unsecured personal loan?

A: An unsecured personal loan means you do not have to be a homeowner to apply for one, and that if you are a homeowner, you do not have to secure the loan against your property. The interest rate of an unsecured personal loan, although normally higher than a secured loan, will remain fixed for the duration of the loan, and is therefore easier to budget for and manage, regardless of external economic fluctuations.

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What if I get declined for a personal loan?

A: Most lenders have an appeal process, the first step is to ask the company why your application has been declined, there may be several reasons. If it was as a result of a bad credit reference you can ask the company which credit reference agency they used and, if you haven't already done so, you can contact the credit reference agency and check out the credit reference yourself for a small fee. Sometimes credit information about you is incorrect or has been affected by someone else fraudulently using your name and information so it is worth checking this out. If you have been declined because you don't meet the company's lending requirements you may have to approach another lender who may have different criteria, or investigate alternative types of lending.

As a tenant can I get an unsecured loan?

A: Yes, the only type of loan that you can't get as a tenant is a secured loan because you need a property to secure the loan.

What if I fall behind on my repayments?

A: If you find that you are struggling to keep up your repayments, contact the lender and explain your problem. Lenders would prefer to work out a new repayment plan that you can afford, rather than start legal proceedings against you or take it as far as repossessing your home.

What is a debt consolidation loan?

A: If you have more than one source of debt (such as credit card debts, and maybe one or two personal loans,) it is sometimes possible to put them all together into one new loan. You can get the repayments for these "restructured" into smaller payments per month over a longer period. This can offer interest savings and make the debt easier to manage. Usually a secured loan is used to consolidate and pay off unsecured debts.

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What are sub-prime lenders?

A: These are non-mainstream lending companies (i.e. not major banks and finance companies) who usually advertise on TV and offer debt consolidation loans, or simply loans that are easy to obtain, whatever your circumstances or credit score. Loans form these lenders usually have very high rates of interest.

What are 'flexible repayment terms'?

A: Flexible repayment terms can include the option of taking 'payment holidays', where you can stop repayments for an agreed period of time. Or reduced redemption charges - so you won't be charged early repayment fees if you want to make lump sum payments into your loan or pay the loan back early.

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Where can I go to get more help? The following links may also provide additional help and information:

If you're curious to know what your credit score is you can check it out for your self at: www.experian.co.uk

To check whether a lender is registered with (and regulated by) the Financial Services Authority go to the FSA Register at www.fsa.gov.uk/register/home.do If you need free advice or help with a personal loan debt contact the National Debtline at www.nationaldebtline.co.uk/ or the Consumer Credit Counselling Service (CCCS) at www.cccs.co.uk/ The Citizens Advice service can also provide help to resolve legal, money and other problems via free, independent and confidential advice, contact the Citizens Advice Bureau at www.citizensadvice.org.uk For consumer and trade information on UK personal loan policies and regulations contact the British Bankers Association at www.bba.org.uk If you have a complaint with a lender and you have been unable to resolve it directly with the company you can ask for assistance from the Financial Ombudsman Service at www.financial-ombudsman.org.uk

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