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What are personal loans? Can I use a personal loan for anything? How much can I borrow with a personal loan? What's the repayment term for a personal loan? How do I apply for a personal loan? How can I compare personal loans?
There are two main types of borrowing - secured and unsecured. A personal loan is an unsecured loan, which means your lender will not require any security for the loan. With an unsecured loan - such as a personal loan - the borrowing limits tend to be lower and you have less time to repay compared with a secured loan. Most personal loans have a borrowing limit of £25,000 and a maximum repayment term of 10 years. If you are a homeowner and need to borrow more than this a secured loan may be more suitable. You could be eligible to borrow up to £100,000 over a term of up to 25 years.
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Almost anything. Personal loans are often used for things like home renovations, car purchases, holidays and weddings. You could also use a personal loan to consolidate debts on credit or store cards.
Personal loans also typically have a maximum limit of £25,000, so this will also limit what you can use the money for. You should be aware that a lender may also restrict your loan amount and repayment term depending on how you intend to use your loan.
The borrowing limits of personal loans differ according to the lender. Some personal loan providers will allow you to borrow from as little as £500 up to a maximum of £25,000, while others set a minimum borrowing limit of £1,000.
The repayment terms for personal loans may differ from lender to lender. Some lenders will also determine the repayment terms according to what you intend to use the personal loan for. Typically, however, repayment periods vary from 1 year to 10 years.
It is advisable to check your credit rating before you apply for a personal loan. The better your credit rating, the better the rate of interest you're likely to be offered for your personal loan. You can get access to your credit file by visiting a credit reference agency such as Equifax PLC at www.equifax.co.uk or Experian Ltd. at www.experian.co.uk
When you order your credit file from either of these top UK credit reference agencies they will often feature tips on how to improve your credit score. By improving your score you have the potential to negotiate a better interest rate with your lender.
There are many personal loans available so it pays to shop around. However, it is important that you ask lenders to give you personal loan quotes rather than making full applications every time you want to know the rate they are likely to offer you. Too many loan applications in a short space of time can damage your credit rating and consequently you'll have less chance of negotiating a good interest rate.
You can shop around at banks, building societies and with online lenders by looking at the APR (Annual Percentage Rate) they will charge. However they will only publish the typical rate that most customers receive - the rate they offer you will depend on your personal credit history and credit score.
Other things to bear in mind when applying for a personal loan are:
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