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Personal loan advantages and disadvantages

If you’re looking to borrow money, be it to fund significant home improvement projects as well as a brand new car, or even consolidate your existing debt Personal loans could be a good option.

Personal loans generally allow you to get more cash than you’d be allowed to do through a credit card and you’re able to repay the amount over a specific time period with fixed monthly payments. But, they’re not the ideal choice for everyone, so let us review the pros and cons of personal loans to decide whether they’re a good fit for you.

How do I get a loan for personal use?

A personal loan allows you to obtain an amount in one lump to be paid back in a specified time frame usually between 1 to seven years. You are able to take out a loan of any amount between £1,000 to £15,000 but some lenders will extend the loan up to £25,000. The best interest rates are typically for sums from £7,500 and up however, you’ll require a high credit score to be able to avail the most competitive rates.

The money you take out will be repaid with fixed monthly installments, which makes it much easier to budget. But, it also means that you’ll have to make sure you’re able to afford your payments every month.

They are referred to as secured loans, which means they do not have to be secured by assets like your home as a secured loan might be. This means that they have a lower risk because there isn’t any chance of losing your home in the event that you cannot meet your payments.

Personal loans: pros and cons

There are numerous advantages of personal loans:

Fixed monthly payments. Your payments won’t change throughout the duration of the contract, which can simplify your life for those on a tight budget.

The option of when you will repay the loan. You can choose the length of the credit (usually between 1 to 7 years) at the time you apply. the longer the period will be, the less monthly payments will be, however, you’ll be paying more in interest over the course of.

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High-interest rates. Personal loan APRs are attractive, especially on amounts of more than £7,500.

The option to borrow a greater amount. It is common to get more cash than you could by using a credit card which is useful when you’re making costly home improvement projects, for example.

Good for debt consolidation. Personal loans can be the ideal option to consolidate loans into one affordable repayment through a single lender. If you opt for an option with a lower interest it will also save you money.

It is not tied to any asset. Personal loans are unsecure, which means you do not have to take assets like your home to secure.

Personal loans: Cons and cons

There are disadvantages to consider too So you’ll have be aware of these and weigh them against the advantages:

Higher interest rates for smaller sums. If you need to take out a loan of between £2,000 and £3,000, rates tend to be more expensive as compared to borrowing at least £7,500. This can make it more tempting to take more loans than you’ll need or pay back.

Flexible repayments. In contrast to a credit card which allows you to pay off a certain amount every month, the repayments on personal loans are set, meaning you must ensure that you’re able to afford the entire amount every month.

There is a chance that you will not receive the rate that is advertised. Lenders must provide rates that are advertised as annual percentage (APR) up to the minimum 51% of applicants who have been successful However, only 49% of applicants may receive a better rate. The higher rates are typically given to people who have lower credit scores, and the best rates are offered to those with excellent credit.

Charges for early repayment can be applied. If you make your repayments earlier, you may be charged penalties for early repayment, that could be equivalent of one to two months of interest.

There are no 0% interest deals. Contrary to some credit cards personal loans don’t provide no 0% interest that means you’ll have to have to pay interest.