A personal loan can be used for almost any purpose, and enables consumers to extend their financial reach and begin planning for the future
Of the many financial products on the market these days, consumer credit and personal loans make up the large majority - personal borrowing has become commonplace, and the many advantages it offers to consumers are taken advantage of more and more often. A personal loan is not only a way to bring a purchase forward, but it also allows borrowers to take control of their finances instead of being constricted by their current circumstances; need a new car, a washing machine, or just fancy a trip abroad? Take out a loan, and you can buy the things that you need straight away, instead of having to wait.
As with all financial products, personal loans come with an interest rate which requires borrowers to act responsibly. Any loan should be sensibly costed so that consumers don’t end up with too much debt to repay, as this can have severe ongoing consequences. Before seeking a personal loan of any kind, consumers should consult a financial advisor and thoroughly read their lender’s guidelines.
The ability to borrow money has been part of society for as long as money has been around, from early Mesopotamian farming loans to the wealthy Italian bankers of the Renaissance. Lending and borrowing is an integral part of our society, but it’s often misunderstood; while a personal loan can help to make life easier, if it’s used inappropriately it can also cause financial trouble. Knowing the difference is important, and gaining a thorough understanding of when loans should (and shouldn’t) be used is fundamentally vital.
In everyday life, it’s sometimes impossible to meet expenses. As anyone who’s had a sudden plumbing disaster or appliance failure will know, sometimes you just come up against an unexpected expense that needs to be paid. In these situations, there is little else to do but look for an unsecured personal loan; without the option to borrow immediately, it would be tough for people to meet the demands of these sudden expenditures.
Some people make use of several different credit sources over the course of several years, and end up paying multiple bills with high interest rates. Instead of paying off multiple high rates, it can be easier for individuals to take out a personal loan that covers the repayment of all these loans in one single package. In addition, because the interest rate attached to a personal loan decreases as you borrow more money, it can be much cheaper too; the overall interest rate will be significantly lower than on each individual outstanding loan.
Consolidating debts like this can be a great way to solve the burden of paying off many different loans at the same time and is commonly used to resolve outstanding credit card bills. However, not all lenders will allow borrowers to use loans for this purpose, so it’s important to check ahead of time whether they will approve these types of loan.
A common use of personal loans is to finance the purchase of a new car, or a particular piece of equipment. For many regular people the cost of purchasing a vehicle or large appliance outright is too much to meet, so consumer credit plays a vital part in enabling consumers to purchase the things they need as and when they need them. For instance, it’s important to keep a car that’s in reasonable repair and that offers good safety to its occupants. Without access to finance, households can easily end up relying on an outdated vehicle with unsafe security measures, or one which risks breaking down. With a personal loan, however, it’s possible to quickly finance the purchase of a more modern vehicle that provides more security and protection.
Another popular use for personal loans is to finance improvements to the borrower’s property. Small development projects and refurbishments can be carried out quickly and easily without the need to source more extensive forms of finance, which enables homeowners to take care of their own projects in their own time.
As we’ve seen, personal loans are highly flexible and can be put to an extremely wide variety of uses. They can be a great answer to many different problems, but it’s important to understand the basic points to watch out for when applying for these loans, to make sure it meets the needs of the consumer’s circumstances.
Personal loans are fixed-term, which means you borrow a specific amount of money for a specific amount of time. This allows you to calculate what the monthly cost of repaying the loan will be, and to increase or reduce this amount; if you borrow £1,000 over a year this will be split into 12 payments of £83, whereas if you borrow it for 3 years you’ll make 36 payments of £27. Bear in mind, though, that interest is charged for the duration of the loan, so although monthly payments are lower with a long loan the overall cost will be higher.
As an unsecured form of finance, personal loans do not give the lender any ability to repossess your assets. Because of this, there is a relatively low cap on the amount that can be borrowed, usually around £25,000. This is enough to fund a car purchase (or part purchase) or to finance a small renovation project, but for major work you’ll usually need to seek a secured bridging loan.
As with most loans, there is usually an arrangement fee for taking out a personal loan. This can vary from lender to lender, so make sure to check the costs before agreeing to a loan. Some lenders will also charge an early repayment fee if you decide to repay your loan ahead of schedule, so be sure to check that the terms and conditions of your lender suit your needs as a borrower.
A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.