What are personal loans?
Personal loans may be taken out for a variety of purposes, from home improvements, funding a holiday, or even to clear outstanding debts such as overdrafts and credit cards. They are a common form of borrowing, and typically involve larger amounts which are paid back over a longer time period, compared to credit cards where the borrowing is usually short-term.
Personal loans vs credit cards
Interest rates on loans tend to be lower than those charged on standard credit cards; however, they can end up being a costlier way of borrowing due to the long-term nature of the debt which typically runs for several years. By spreading the debt over a long period of time more interest will accrue; essentially the longer you take a loan out for, the more you will pay back overall.
Another reason people may opt for a personal loan over a credit card is due to the amount of money offered by the lender. Credit cards tend to have lower credit limits of anywhere up to around £5,000. Personal loans on the other hand can be offered on amounts up to £50,000. While this has advantages, it also means that if you have trouble making the necessary repayments for any reason, the higher level of debt makes the situation more difficult.
What happens if you can’t make your monthly repayments?
Personal loans are a form of unsecured borrowing, which means you are not in danger of losing your home if you have problems making the monthly repayments. However, this is not to say that there are not serious consequences to defaulting on a loan. Not only will the missing payments damage your credit file, you will also be hit with late payment fees as well as monthly interest continuing to be charged and added on to your balance. Furthermore your lender will not allow you to miss many payments before they start to chase you for payment. Should you fail to pay, your debt may eventually be handed over to a collection agency who will employ various techniques to recover the money owed.
If you are struggling to repay your personal loan, it is important for you to seek professional advice in order to sort out the situation. Contact our experienced advisers today for a same-day appointment.