personal loan guide

Most people typically clear their loans on a regular monthly basis, taking from anywhere between one and five years.

For sums of between £1,000 and £25,000, the personal loan is these days typically the first port of call for millions of people needing a bit extra - many borrowers will use their loans to consolidate other, more expensive debts such as outstanding credit card balances and bank overdrafts - but of course millions use them for major purchases such as motor cars.

As a general rule of thumb, the more you borrow, the cheaper the rates of interest. So if you want say, £1,000, you could be looking at rates as high as 20 per cent - the lenders say this is because of the relatively high administration costs involved in arranging loans. Sums of this size are often better put on a low cost credit card, or run as a bank overdraft.

But for the bigger sums, many will opt for a personal loan. Borrow £25,000, spread over say a five year period, and you could be looking at rates of under six per cent.




With the Bank of England base rate still at historic lows, this represents very cheap borrowing.

Another consideration is whether or not to take out insurance - known as payment protection insurance - which covers your loan repayments in the event of your not being able to work through accident, sickness or unemployment.

But this kind of cover can significantly drive up the cost of the loan repayments, and there are often many clauses in the small print which can trip you up. If you are self-employed, or on short term working contracts for example, you may find that the terms and conditions of the loan are not appropriate for your circumstances.