We can say that personal loan is an amount of money which we borrow from a bank, relative, family member or other financial institution. In return, we agree to make regular payments, usually monthly or yearly. Assuming we have taken out a repayment loan, some of the money we repay will go towards interest of the loan and the rest of our payment will be used to pay off capital and reduce the loan amount.

A personal loan can be a good option if we have a number of debts which we wish to consolidate into one loan. In doing so, we ought to be able to simplify our affairs and often reduce the overall cost of credit. Banks, building societies and specialist finance companies all offer personal loans, so we will need to shop around. Different lenders have different preferences when deciding which borrowers to take on. As a borrower when we are considering one deal with another, make sure we are comparing like with like. The interest rate to look for is the Annual Percentage Rate (APR).  The APR (Annual Percentage Rate) is a method of providing a true comparison between different personal loan interest rates. It shows the true interest rate of the personal loan we are being offered.

The lower the APR on a loan the better because it means we have less interest to repay, so the loan is cheaper. Interest rates vary. And, it’s worth bearing in mind that some lenders are only interested in lending to people whom they regard as a ‘low risk’. These people may secure lower interest rates.  Lenders vary in their approach, they’ll want to ask personal questions about our finances and our future plans before making up their mind on whether to lend and at what interest rate.  If we cannot pay back the loan for whatever reason, talk to your lender at the earliest opportunity. They’ll want to consider carefully your individual situation. If they reasonably believe your financial situation may improve, they may be prepared to suspend loan repayments for a while or extend the term of the loan. In the final instance, they can insist on the debt being repaid.

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