At a glance... Personal Loans

Personal loans are amongst the most common of financial products

However, most borrowers are unlikely to get the best deal because when they decide to apply, they simply go straight to their bank and take whatever is on offer. Even in the current credit crunch environment, there are dozens and dozens of companies offering loans and you'll have plenty of products to choose from. It's worth taking a look at our best buys table and shopping around. A single percentage point in interest could save you thousands over the course of your loan. However, there are pitfalls you'll need to avoid, and questions you need to ask before you make your decision. Term First you need to decide the term you'll want the loan for. Shorter terms mean, obviously, you'll pay the debt back quicker, but they also mean you'll pay less interest overall. This is because your debt is outstanding for a shorter period of time. Of course, a shorter term means higher monthly payments, so make sure you can afford your commitment before you sign on the dotted line. Secured or unsecured If you're a homeowner, you'll find it much easier to get a loan. This is because lenders consider you lower risk - you're less likely to abscond without them being able to find you, for example. You'll also have the choice of whether to take a secured or unsecured loan. A secured loan is one that is tied to your home. If you fail to keep up repayments, your lender has the right to repossess your home to get its money back. Interest rates are generally lower, again because the debt is lower risk, and you will probably be able to borrow more money. But you need to think carefully about this sort of debt - only take it out if you are absolutely certain you can make the repayments. The risk is moved to the borrower, as you are putting up your own home as security. You don't want to get into a situation where you are having your home repossessed because you can't keep up the repayments on a loan for a great holiday, for example. An unsecured loan does not require any collateral, such as a property. This means you have less to lose if you start to struggle with repayments, but as a result lenders have tighter criteria so you may not be able to borrow as much as you want. You'll also probably have to pay a slightly higher rate. Rates Rates are generally based on how risky the lender thinks you are - if you have a perfect credit history, you'll pay less; if you have a few debts already or have had problems in the past, you'll pay more. Different lenders have different criteria, so it's worth shopping around for the best deal. Flexible Some lenders offer flexible loans. These allow you to overpay and borrow back money you have already repaid. Standard loans operate on a fixed repayment schedule, and overpaying or paying off the debt early can be costly, so if you feel you may want to do this, look for a flexible loan. Rates are likely to be slightly higher though. Loan insurance Many lenders will offer you insurance alongside your loan. Depending on the cover offered, this will help you out if you become unable to make your repayments through illness or unemployment. While such policies can be a lifesaver for some borrowers, take care when deciding whether to take one, especially if the full price of the policy is added to the loan, which means you are paying interest on the policy as well as the debt. These policies can be amazingly expensive. Bad credit If you have had credit problems in the past, there are still a number of providers who will offer you loans, especially if you are a homeowner. Your rates will be much higher though, and make sure you can afford the repayments on a secured loan as your home will be at risk. Check out our tables for the latest deals.

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