Personal Loans - 3 Things To Consider If You Are Thinking Of Taking Out A Personal Loan

Personal loans are a good way to borrow money to get yourself a new car, a new kitchen, a nice holiday or any other kind of purchase that requires an up front lump sum payment. Personal loans are usually for between £1000 and £25000 and the biggest advantage of this type of personal finance is that you know from the start how much your repayments are going to be throughtout the term of the personal loan as the interest rate on the personal loan is normally fixed for the term of the personal loan. The other big advantage of a personal loan is that they are usually an unsecured personal loan, meaning that you cannot lose your home if you were unable to repay the loan which is the case with secured loans secured against your property.

Here are 3 things to consider before taking out a personal loan:

1. It may sound silly, but do you really need to borrow the money at all? If you have some savings, then you might consider using some of your savings instead of taking out a personal loan because the interest you are getting on your savings is unlikely to be as high as the interest you would be paying on a personal loan. Of course if doing this would leave your rainy day money a little short, then a personal loan may be the best option for you. Another thing to take into account is that taking out a personal loan is a long term commitment and you have to be sure you can make the repayments. You could instead simply save up your money and wait a while until you can afford your purchase rather than taking out the personal loan.

2. Another thing to consider is this, do you already have access to cheaper forms of borrowing? You might be able to borrow the money from one of your existing credit cards and do a low rate or zero rate balance tranfer to another card, you may have an overdraft facility with a lower rate of borrowing than the personal loan you are considering or maybe you could borrow the money from a close family member.

3. The third thing to consider when taking out a personal loan is do you want to take out payment protection insurance on your personal loan or not?  Payment protection insurance covers your personal loan repayments if you become sick, have an accident or are made redundant. Payment protection insurance is usually quite expensive and can cost you as much as the interest on your personal loan, also when your personal loan company tells you the APR of your personal loan they normally don't incude the cost of the personal protection insurance in the APR so this is something you would have to work out yourself if you want to know the true APR of your personal loan. You have to make a decision as to whether the payment protection insurance is worth the cost to you. One final thing, if you are self employed then the value of payment protection insurance to you could be diminished as it will most likely not cover you for unemployment so it is best to check this before you buy.