A personal loan is a form of loan that allows you to borrow money from a lender, which will be paid back in a specific amount of time with interests. You can apply for a personal loan in banks, private lenders, building societies, and credit unions.
Since private lenders don’t usually impose how the money will be used, personal loans for just about anything. This type of loan is an excellent way to make up for emergency expenses such as medical and utility bills or even loans to pay your rent.
Types of Personal Loans
This is the most common type of personal loan. This type of loan is not supported by collateral, which means that the lender cannot demand anything from your assets if you fail on your repayments. Moreover, it offers a more flexible approach in determining loan amounts and terms of repayments. This type of loan is risky for lenders. That is why it offers a higher interest rate (APR).
This is also known as a homeowner loan, first charge mortgages, or second charge mortgages. Unlike unsecured personal loans, this type of loan needs to be supported by collateral. An example of this would be a mortgage, which is secured by your house. This type of loan is riskier for borrowers but offers assurance for lenders. Hence, it has cheaper interest rates than unsecured loans.
This type of loan offers a fixed interest rate for the entire term of the loan. In a fixed-rate loan, it does not matter whether the interest rates in the market increase or decrease because it will remain as is. It will be easy for you to oversee repayments under this type of loan.
This type of loan varies from the changes in interests rates in the market. The interest rate under this type of loan is linked to an indicator, like the London Interbank Offered Rate (LIBOR). Variable Rate loans are advantageous when interest rates in the market decline because it will mean that the loan payments will be lowered as well.
This type of loan consolidates all of your existing loans into one new loan. It can either be secured or unsecured and carries lower interest rates. You’ll start with computing the total of all your debts. After that, you’ll apply the amount under this type of loan at a rate that favors your interest. With a practicable monthly payment, you can pay them simultaneously.
This type of loan requires a co-signer who promises to repay the loan if the borrower defaults. Having a co-signer with a good credit score and report increases your chances of getting the loan approved. Borrowers who usually apply for this type of loan have no credit history.
This type of loan is closely similar to a credit card. Under this type of loan, you have an exact amount of money that you can use for your expenses. Lenders will determine the amount you can borrow by assessing your credit and other details needed, such as your income.
Where Can I Find Personal Loans Online?
Typically, when it comes to online personal loans or any form of unsecured loans online, borrowers will find themselves either going direct with a lender or going indirect through a loans connection service (more information here) which is an online service offered by various companies that connects borrowers to direct payday and other lenders online quickly and efficiently. There are benefits to using either of these services, with going to a direct lender potentially helping you establish a relationship with the lender from where the loan will come, whilst a loans connection service can compare various lenders at once, quickly.
Personal Loans and Credit Scores: UK vs. US
Having a bad credit score limits your options in applying for a personal loan. Individuals with good credit are usually offered a lower interest rate than individuals with bad credit.
The possibility of getting a loan approved with bad credit is low. One of the solutions to this matter is to improve your credit score. It can be done by paying your credits on time, low credit utilisation, and not applying for new credit.
Edinburg has been recorded as one of the cities in the UK with high demand for personal loans, both with good credit and bad. There is no universal standard that defines your credit as bad.
According to The Telegraph, the UK has three major credit agencies that score your credit differently. Those credit agencies are Equifax, Experian, and TransUnion (previously known as Callcredit). A high score means good credit.
The UK’s credit rating scales are the following:
| Credit Score |
Credit Rating |
| 0-279 |
Very Poor |
| 280-379 |
Poor |
| 380-419 |
Fair |
| 420-465 |
Good |
| 466-700 |
Excellent |
| Credit Score |
Credit Rating |
| 0-720 |
Poor |
| 721-880 |
Fair |
| 881-960 |
Good |
| 961-999 |
Excellent |
| Credit Score |
Credit Rating |
| 0-555 |
Very Poor |
| 561-565 |
Poor |
| 566-603 |
Fair |
| 604-627 |
Good |
| 628-720 |
Excellent |
In the US, a credit score ranges from 300-800, as provided by the Fair Isaac Corporation (FICO). A score above 650 is considered a good credit score, while anything below that number is a bad credit score. New York has the highest personal loan balances in the US. And for those with bad credit scores, California loans have been recorded to be among the highest in the country.
Takeaways
Finding the right personal loan that will suit your needs will depend on your current needs and resources. Is applying for a personal loan a necessity? Will I be able to pay the amount I intend to borrow? Those are just some of the questions you need to ask yourself before choosing and applying for a personal loan.
