Shopping for a personal loan

Ten years ago, if you wanted to take out a loan, you’d probably go straight to your bank. They would offer you a so called ‘good deal’, you’d sign up and that would be that.

However, if you were more proactive, you may have taken out a bit of time to see what rates other banks and financial organisations were offering by trawling your local High Street and wearing out shoe leather, and, by making a few ‘phone calls.

Nowadays, things are so much easier! The internet has opened up a whole new way of searching for the best loan deals and interest rates – all from the comfort of a chair!

There are several ways that you can shop around for loan rates .. first of all, you can use a web aggregator. These are websites that list details of most major loan providers and their products, their details, their rates, terms and conditions. This will give you a feel for what current deals are around.

There are also specialist loan websites that you can visit. As these specialise in loans, they can sometimes offer exclusive deals and rates that aren’t available on the High Street.

You can also speak to a broker and let them do all the hard work for you! Again, there are many specialist broker sites available on the web – look out for those that don’t charge a fee. They’ll take all your details down and come back with the most suitable loan for you.

 Applying for an unsecured loan

If you are considering applying for a loan and do not wish to offer your property as security then an Unsecured Loan could be the answer. Normally, because of the lack of security to the lender, the maximum amount you would normally be able to borrow would be limited to £25,000. The time span for repayment of an unsecured loan ranges from six months to ten years. In  recent years, institutions such as supermarkets have also entered the Unsecured Loan market and it will pay you to shop around so that you may receive the best terms for this type of deal.

Because the loan will be unsecured, the interest rates will be higher than if the loan was secured on property and also the repayment period may also be for a shorter term as the lender has no guarantee of repayments on an unsecured loan. If however, the borrower reneges on the repayment agreement and fails to repay the loan, the lender may seek recourse through the legal system to recoup his outlay. It is therefore, necessary to consider carefully your ability to repay before proceeding with your application.

It is also prudent to enquire before finalising the loan, about the annual percentage rate (APR) – whether the interest rate is fixed for the lifetime of the loan repayment period or whether it varies with the base rate. Also ask about any early repayment penalties there might be. You may find it judicious to consult several lenders concerning interest rates for your proposed Unsecured Loan and compare them, rather than accept the figures of the first lender you approach.

.... or for a secured loan

A secured loan is where you borrow money and the debt is secured against your assets – normally your home. This means that should you miss your monthly repayments (this is called ‘defaulting’) you stand to lose your home as the loan provider can seize it in order to get their money back.

However, secured loans – which can be used for whatever you wish - have the benefit of enabling you to borrow larger amounts of money. Also, secured loan rates normally attract a lower rate of interest than if you took out an unsecured loan. The amount that you can borrow up to is normally based on the amount of equity in your home. This is because you have your home as surety against the debt.

With a secured loan, your monthly repayments should also be lower as secured loans tend to run over a longer period than unsecured loans, therefore ‘spreading’ the repayments.

And if you had a poor credit history but are a homeowner, you should find easier to get a loan if you apply for a secured loan.

Of course, the major disadvantage of taking out a secured loan is that you do stand to lose your home if you cannot afford to meet - and you miss - the monthly repayments.

And getting approved for a secured loan will take longer than getting an unsecured loan as your home will need to be valued.

If you are considering a secured loan, make sure that you get several quotes from different providers to ensure that you get the right deal for you. Check out the fees charged; the monthly repayments; and, most importantly, the interest amount you will be charged.