2.
How much should I borrow and over how long?
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.
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