Personal loans are available for a range of different amounts and repayment terms. Depending on the amount and purpose of the personal loan, you will be able to choose from a range of repayment periods. Larger personal loans such as those over £10,000 can usually be taken over longer terms i.e. 7 to 10 years.
The minimum personal loan amount is typically £1,000 although some lenders do offer £500 and upwards. The maximum amount you can lend is £25,000, although this will vary between lenders and products.
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A personal loan isn't always the ideal way of borrowing money. You might want to think twice if:
You need to borrow only a few hundred pounds: The smaller the sum you borrow, the higher the rate of interest you pay. Borrowing an amount under £1,000 is extremely expensive in terms of interest charges. Most lenders also have a minimum that you can borrow: If you need less, you may find yourself taking out a bigger loan simply in order to get the money in the first place. This isn't a wise move.
You may be better off borrowing smaller sums on a credit card or extending your overdraft instead of opting for a loan.
You can repay the money in a couple of months: The shorter the loan's term, the bigger your monthly repayments, so work out whether you could afford them if you take a loan out for just a year or so. If there's a chance that you'll be able to clear the loan even sooner, you may be charged a redemption penalty for doing so.
If this is the case, you may be better off borrowing on a credit card with a 0 per cent introductory period for several months instead. This may be enough time to repay your borrowings - without having to pay any interest at all.
You're borrowing £20,000 or so to improve your property: If you already have a mortgage, it might be cheaper to ask your mortgage lender to extend your home loan rather than take out a personal loan particularly if you need money to build an extension or otherwise fix up your home. Although interest rates on personal loans have fallen, they still tend to be higher than mortgage rates (the cheapest loan is around 6 per cent compared with mortgage rates of less than 5 per cent). So you pay less interest if you increase your mortgage instead. This may also be easier to arrange than a personal loan because you already have a relationship with the lender.
Think carefully before extending your mortgage and overburdening yourself. Your home is at risk if you can't keep up the repayments on it, whereas if you take out an unsecured loan to pay for your extension, your home is safe (even if you default on the loan payments). Don't gamble with the roof over your head.
Understanding How Loans Work
You can borrow between £500 and £25,000 on a personal loan. Some lenders let you borrow quite a lot more than £25,000 if you opt for a secured loan. You choose the repayment period, which can be anything from six months to seven or even ten years.
Repayments are monthly, usually by direct debit from your bank account. If you opt for a flexible loan, you may be allowed to overpay or make lump-sum payments in order to clear the debt more quickly. However, generally speaking, lenders charge a penalty if you pay off your loan early.
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