Why Choose a Personal Loan

A personal loan is a form of unsecured and uncollateralised loan provided by high street banks, building societies, credit unions, and online lenders. This means you can borrow money without pledging your home or other property if you fail to make repayments. The UK personal loan industry is currently valued at over £25 billion annually, and many people are turning to this form of credit now that the worst of the economic recession is over. It is the second most popular option behind credit cards.

Personal Loans Explained

A personal loan is one of the simplest credit options out there for the average consumer, and the process typically allows you to request an amount of your own choosing and the duration that the loan will be outstanding.

This will be within a maximum and minimum offered by the lender. Usually the length of a personal loan falls within one and seven years, and the amount you can borrow usually falls between £1,000 and £25,000. These movable goal posts allow you to seek terms that work best for you. Anything less and a payday loan may be more suitable and anything more is entering in to the realm of secured loans.

Personal loans are repaid in regular instalments over the period of the loan term (commonly on a monthly basis), and the interest you are charged on each payment with be an Annual Percentage Rate (APR). This is usually fixed but can also be variable, depending on what you agree to.

Although lenders are obviously seeking the most amount of interest possible, they recognise that stifling a borrower from repaying early is not a good practise. That’s why most lenders will now allow you to make over payments (pay more than the current instalment) or pay the loan back in full before the term is complete, without any extra charges.

UK law also requires a 14 day grace period from the date you sign the contract, which allows you to cancel the agreement and return the principal without any interest or charges if you’ve had second thoughts.

Whether a personal loan is the right choice for you will depend on your financial situation, however even if you have existing debts you may find it easier to manage them by consolidating them with a personal loan. In some cases you may even be able to find a better rate than you are currently paying, especially if you have multiple credit cards.

You won’t usually be asked what you are going to use the loan for and there are no restrictions either. Common uses include repairs and home improvement, making larger material purchases, buying a car, going on holiday, or covering emergency expenses.

Before You Proceed

Because the economy is recovering the market has grown competitively in recent years, which has driven rates down as lenders are vying for your business.

It is important that you shop around and look beyond your bank and other large high street lenders, if you want to find the best deal. In today’s are there are now many smaller online lenders that not only offer better rates, but often have a faster and easier application process. In some cases funds can arrive within 24 hours if you meet all of the requirements and your information can be easily verified.

Before preceding it is wise to access you credit report so you have an idea of the type of loans you can go after. The higher your rating the better interest you will be offered.

Using certain price comparison services will allow you to do a ‘soft search’ which will let you know whether you are likely to be approved or not when you make a full application. It will also allow you to find some of the best deals and easily apply, without having to go to each lender one by one. Each price comparison site won’t cover every lender though, so it is also a good idea to use multiple comparisons and do your own research as well.

It’s not always about APR either. Your personal shortlist should also make note of minimum requirements, any undesirable loan terms, how long they take to fund the loan, and other features. Reading customer reviews will also give you a good idea about the overall customer service experience, especially if you are targeting a smaller online lender. Banks on the other hand tend to have a high standard of service by default.

As long as the loan you are applying for is affordable and you’ve done a budget (factoring in interest), you’re certain your circumstances won’t change and you have the means to make repayments, you’re using the loan for a purpose that won’t get you further in to debt, and the length and repayment terms suit your situation – you are well on track to having a positive borrowing experience.

Understanding Loan PPI

If you have dipped your toe in to the UK loan market in recent years you will have invariably come across the topic of PPI – short for Payment Protection Insurance. Claims of PPI being unjustly sold to consumers became such a big deal that even cold calls were made by companies promising to help you get your money back, even if you never took out PPI in the first place. However despite the controversy it remains a worthwhile option when taking out loans and credit, so understanding how it works (when sold properly) is another weapon in your loan application arsenal.

What Is PPI?

You may see PPI offered by lenders under various names, including loan repayment insurance, credit insurance, or credit protection insurance. The purpose of PPI is to cover the borrower should they fail to make repayments due to joblessness, illness, or other accepted circumstances. This insurance will cover repayments for a certain period of time, hopefully allowing the borrower to get their finances in order to continue making repayments. The duration covered is typically 12 months, but can vary depending on what you agreed and how much you have paid in to the policy.

The key thing to consider with PPI (as with any insurance) is whether you believe the amount you will pay is worth the risk of never having to invoke the policy, because in the long run you will be paying more on your loan.

There are two main types of PPI that you will be commonly offered on loans and credit. These are single premium policies that require you to make a one off lump-sum payment at the beginning of the loan term, or regular premium where you pay the insurance monthly.

Like the loan itself you do not automatically qualify for PPI and you will be assessed by the lender to see if it’s feasible. Because you will be required to pay more, this obviously rests on your ability to do so. Likewise if lenders fear you may end up missing payments, it is in their interest not to sell you PPI. However in such a scenario you are probably unlikely to get approved for the loan either.

To be eligible for PPI in the first place there will also be several basic requirements. This may include age restrictions and minimum working hours. It might also exclude the self-employed and those on maternity leave.

PPI Alternatives

Although not sold by lenders, if you are looking for a way to protect yourself in the case that you cannot afford to make repayments on a loan or credit card, Income Protection Insurance is the most common alternative. This type of insurance usually pays out between 50% to 60% of your income each month, should you lose your job through no fault of your own – including injury or illness. This in turn will help you cover any loan or credit card repayments that would usually be affected by such a change in circumstances and might have been protected under a PPI policy.

Income protection may be more appealing than PPI as it insures your whole income, not just a single debt. For example if you had PPI on a personal loan but not your credit cards, losing your job is still going to be a struggle as you try to find funds to cover the card payments.

A similar option is critical illness insurance, which unlike income protection is paid out in one lump sum should you become too ill to work. It is commonly used in scenarios where the policy holder is ill enough to receive government benefits but still needs enough funds to cover larger debts like mortgages.

Reclaiming PPI

If you have ever taken out credit in the UK (from overdrafts to store cards) it is possible you were sold PPI without your knowledge or full understanding. It is easy to check if a policy existed by going through your statements and looking for terms like “loan protection” or “payment cover.”

If so you may be eligible to claim this back. Common miss-selling tactics included telling the borrower it was compulsory, the policy being opened automatically (mentioned in small print but not explicitly), or if you were self-employed or unemployed but this was excluded from the policy. If the lender has already been fined, your reclaim may be handled on mass without excessive paperwork.

To reclaim all you have to do is send a letter including your account details, the reason why you are reclaiming, and nay dates and relevant statements.

6 Comforting Facts about Student Loans

If you wish to broaden your mind and open yourself up to the job market, studying at university is still a worthwhile option that can bag you a career and a high paying salary. However getting to that point is not free!

Student loans are a big topic of controversy in the UK, and thanks to misleading headlines and political rhetoric it can be quite difficult to understand what they are and how they work. Fortunately the idea that you will be saddled with tens of thousands of crippling debt when you leave University level education is not quite true. Student loans do not function like a personal loan you would take out at the bank, so there is no need to worry about financial hardship, bailiffs and all of the other scary things we often associate with large amounts of debt. It’s a fact that education is not free, but that doesn’t mean you will go broke either. The days of only the rich having access to such opportunities is long gone.

Here are 10 comforting facts about student loans that should put your mind at ease if you choose this method of financing your education.

It is more like an income tax than a loan

It is true that the cost of a University education is steep, with figures as high as £50,000 being floated around when you consider every year of a degree and the associated living expenses. However the repayment terms are set up in such a way that paying it back should not have a major impact on your life. You are only required to begin repayment once you graduate or leave the course and then only if you earn over a certain amount. This currently works out at 9% of any income you earn over £21,000. So if you earned £22,000, you would only need to pay 9% of £1,000 – which is just £90. This can therefore be looked at more like a small income tax than a crippling debt.

If you earn below that figure you won’t have to pay back the loan at all until you begin to do so. The majority of people over their working lifetime will not have paid back the full amount, and this is perfectly ok. It’s not really designed to be paid back in full.

The Debt Is Wiped After 30 Years

On top of the fact that you only begin paying back the loan when you are earning, the entire debt is wiped clean after 30 years. So if you enter University at 18 years old, you are no longer required to make repayments as you enter your 50s.

Your Credit Score Isn’t Affected

A young person (or anyone for that matter) taking out thousands in loans could quite quickly end up with a wrecked credit score, especially if they don’t have the means to pay it back. However student loans are much different. They are not even recorded on your credit report and the only way other lenders can learn whether you have students loans is if they ask you in their applications. In reality this is usually only sought when applying for a mortgage. In other words your credit rating will not be affected by taking out a student loan.

You Can Repay Early, But There’s No Point

A lot of loan products require you to see through the full term as a way to ensure you pay the most amount of interest. This is not true of student loans, which you are free to repay in full at any time. However there is no practical reason to do so, unless you earn a considerable amount. Furthermore if you choose to forgo the loan completely and pay the fees upfront, you may actually be £10,000s worse off in the long run, depending on your income.

Loans are for Tuition and Living Expenses

Loans with the same repayment terms are now available for living expenses, not just tuition fees – meaning if you move away from home to pursue a degree you can borrow enough to cover your rent, necessities and course related materials, without having to eat in to important study time by working a job. These loans are means tested, so if your parents don’t earn a lot or you live alone, you will be able to get up to £8,430 (if you reside outside of London, where you can get even more).

Most People are in the same Boat

It’s easy to slip in to the victim’s mind-set, but unless you are one of the few privileged that pay for their education upfront, you are in the same boat as everyone else. So when you think of future earning potential you are also comparatively no worse off than anyone else either.