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Guide to Personal Loans

Sep 23, 2007
You can take out a Personal Loan for a number of reasons and from a number of personal loan companies. How much you can borrow will depend on the lender and your personal circumstances such as your income, ability to repay and any previous credit problems you may have had.

If you are considering taking out a Personal Loan then it is important that you always read the small print carefully or else you may find yourself with hidden charges or penalties that you hadn't realised you would incur. The current Personal Loan market is very competitive with a great number of lenders willing to lend people money. Therefore you should shop around to see what the various competitors are offering, but always check the small print to make sure that you don't get penalised by hidden charges.

"Typical APR" Explained

Often when you see a Personal Loan advertised you see it offers "typical APR". This is the headline interest rate figure that the lender will quote when advertising a loan but this may not be the rate you get for your repayments.

This is because that many lenders calculate the Annual Percentage Rate (APR) based on risk based pricing. This means that they consider each individual person's personal circumstances before deciding on what rate to offer. Although a lender has to offer this typical rate to 66% of people that successfully apply for a loan, it is possible that you won't get this rate.

For example, if you have a bad credit rating you may find that your APR is higher and you end up having to pay back more interest because you are seen as more of a risk of not repaying the loan. At the same time, a good credit rating could lead to a reduced APR because you are seen as less of a risk.

Early Repayment Charges

You might think that loan companies would appreciate people paying off their loans early, however this is not the case. Loan companies prefer you to stick the planned agreement because they make their money off the interest they charge you for taking out the loan. If you pay off the loan early they will lose some of the interest and they may charge you an early repayment fee. The actual early repayment charge will depend on when you choose to pay off your Personal Loan. The earlier in the agreement you decide to pay it off, the higher the charge will be.

Not all companies charge an early repayment fee so make sure you check the small print to avoid incurring one unneccessarily.

Payment Protection Insurance (PPI)

When you are taking out a Personal Loan you may be offered payment protection insurance (PPI). This in effect covers you should you have problems repaying the loan because of circumstances out of your control. For example you lose your job or become ill forcing you to take time off work.

Although such cover may appear appealing it could prove quite expensive in the long-run. As with all Personal Loans, you should always check the small print to see what circumstances you are covered for, and, perhaps, more importantly, what circumstances you are not covered for.

Another thing to look out for is when lenders add the cost of a PPI to the Personal Loan itself at the outset meaning that you end up paying the interest on top of the cover as well for the Personal Loan itself.

PPI is available from other companies other than just the one you take your Personal Loan out with so it may be worth considering one of these as they often offer it at a reduced rate to what your lender will charge.
About the Author
The Loans Website offers information and resources about the various types of loan that are available. It helps you research different loans to find the best one for you and your circumstances. For more information please visit http://www.loanswebsite.org.uk .
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