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What is a Personal Loan? 

There are two main types of personal loans - secured and unsecured. Secured loans are usually secured on your home - which means if you default, you may be forced to sell your home to repay the loan. Unsecured loans are not tied into anything, but if you don't make the repayments, the bank will blacklist you and you may find it difficult to take out other financial products, such as credit cards or a mortgage. A Secured Personal Loan is usually secured on a borrower's property and is therefore not available for people living in rented accommodation. Taking out a personal loan is a way of borrowing money from a bank, building society or other financial service provider. The amount you can borrow depends on your credit status. Generally speaking, the more you borrow, the lower the interest, but at the time of writing, rates vary from around 8% to 20%, so you'll need to shop around. This is made more difficult by the fact that it is not easy to compare personal loan rates because different lenders calculate the total cost of the loan (known as the APR or annual percentage rate) in different ways. 

Most loans are re-paid by monthly installments and the repayment period will be agreed before you get the money. This is usually a fixed period and you will have to pay a redemption penalty - an example being two months interest - if you want to pay it off sooner. The longer the repayment period, the more interest you will be paying, so go for the shortest one you can manage. Flexible loans, which let you borrow and pay back at will, are becoming more common, but the interest rate charged is often significantly higher. 

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