Personal Loans

Personal loans are also termed unsecured loans because (from the lender’s point of view) the loan is not underpinned or “guaranteed” by the security of a house if the borrower reneges on the payments.

It is a means of borrowing for those who do not have a home to offer as security or a means of borrowing without risking the family home.

Loans are available from banks, building societies, direct loan providers and credit unions. Generally you are required to pay a certain proportion of the loan off each month and in addition you will be charged interest on the loan. Because of this you will pay back much more than the amount you borrowed and interest rates can be as high as 25 or 30 per cent a year although some loan deals have low introductory offers for the first part of the loan.

Just how much more you pay depends on how long you borrow the money for. Generally the longer the loan period the more interest you pay so it can make sense to keep loan periods as short as possible. It’s also important to check the small print to see if there are charges for paying the loan off late or paying it off early and consider taking out repayment insurance in case you are made redundant and cannot meet payments.

Credit Cards and store cards

Credit cards and store cards are another means of borrowing in the short term because each time you pay for something using a card you have usually about four to six weeks before you then have to pay the amount back to the credit card provider.

You do not have to pay the whole amount back each month and can opt to pay the minimum demanded. But if you do this you will be charged interest on the amount borrowed and the rates of interest on credit cards will be much higher than on other forms of borrowing or “credit”, often 15-25 per cent per year.

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