A personal loan is an amount of money borrowed from a bank, credit union, or other lender that you pay back in fixed monthly payments, typically over a period of one to seven years.

Personal loans are usually unsecured, meaning they do not require security like your home or car.

Unsecured Loans

These loans do not require you to put up any collateral and are based on your creditworthiness.

Typically, a personal loan will be used to consolidate debt, buying a car, home improvements, weddings, or funding a holiday.

Secured Loans

These require security, such as your home or car, which the lender can seize if you fail to make payments.

Typically, a secured loan will be used for larger loan amounts for major purchases or where you have a low credit score.

Your credit score will largely determine the interest rate you're offered. Higher scores mean lower rates.

Look at various lenders, including banks, credit unions, and online lenders to find the best rates and terms. Consider the Annual Percentage Rate (APR), which includes both the interest rate and any fees.

Most lenders will require proof of income, identity, and address. This could include your payslips, bank statements, ID, and utility bills.

Once you’ve chosen a lender, complete their application process, which can usually be done online. Be honest and accurate in your application to avoid issues.

These can be fixed or variable. 

Fixed rates stay the same throughout the loan term, while variable rates can change based on the market.

Look out for set-up fees, late payment fees, and early repayment charges. These can add to the cost of your loan.

Ensure that you can comfortably afford the monthly repayments on your loan.

Consider the total amount repayable, which includes the borrowed amount plus interest and any fees.

A longer loan term means lower monthly payments but more paid in interest over the life of the loan.

Some loans have penalties for early repayment. Check if this applies before you commit, especially if you plan to pay off your loan early.

Personal loans can be helpful if you have a healthy disposable income to manage them. The list below hightlights the main advantages:

• Can consolidate debt into one manageable payment.

• No security needed for unsecured loans.

• Fixed repayment schedule helps with budgeting.

You should always think carefully about whether you can afford a personal loan. The list below highlights the main disadvantages:

• Potential for high-interest rates, especially for those with poor credit.

• Additional fees can increase the cost.

• Risks to credit score if payments are missed.

• Difficult to stop or lower the repayments if the loan is with your main bank.