| This interest charge is shown as an APR (Annual Percentage Rate). Any firm that lends money is required by law to quote the APR. The advertised typical APR quoted needs to be offered to 66% of borrowers.
The APR usually depends on the amount of the personal loan and sometimes the term as well. This means the best rate for one personal loan amount may not be the best rate on all. Some lenders however do offer the same rate to all their borrowers. You need to check the best rate dependent on the amount and term you are after.
Personal Loans - things to consider:
Typical APR
You may not always get the advertised typical APR on a personal loan. The rate you are given can depend on your credit rating. This is a scoring system that lenders give people with to determine how credit worthy they are.
Personal loan early settlement penalties
Paying off your personal loan early can save you hundreds of pounds in interest. However, some personal loans apply penalties to those wishing to close their personal loans before the end of the term. This applies to fixed-sum loans taken out on or after 31 May 2005 and that are regulated by the Consumer Credit Act 1974. If the personal loan is paid off early, the lender may charge a penalty (subject to a set formula) of 30 days or one calendar month. This applies when the original loan term is more than one year and the advance is £25,000 or less. For terms of one year or less, no redemption penalty is payable. This penalty is set out in the rules governing repaying loans early and is covered by the Consumer Credit (Early Settlement) Regulations 2004. Personal loans taken out before this date may have higher penalties. If you are refinancing you should take this penalty into consideration when working out any.
Personal loan deferment Periods and payment breaks
Many lenders will allow a break between when you receive your loan and when the first payment needs to be made, beyond the standard month. While this gives you a break from payments, interest is charged over this period which actually increases the total interest payable. Lenders also offer breaks during the loan term, but again interest is charged on the amount not paid. This means a larger loan amount is left unpaid for longer. These breaks may incur charges.
Personal Loans same Day Funds
Some lenders offer same-day-funds facility which means you get your money on the same day that you complete the application. There is usually a fee for this service which can be as high as £50, so consider this carefully.
Direct Debits
Most lenders need a direct debit to pay the monthly instalments on your personal loan. You need to ensure your bank account can accept these and ensure that the money is available for payments. Penalty charges for missed payments can be as high as £38.
Payment Protection Insurance for personal loans
This is an optional insurance that will cover your repayments should you be unable to work under certain circumstances and can include:
- Unemployment
- Accident
- Sickness
- Death
It is important to check the small print to ensure the cover provided is suitable for your needs.
Insurance Providers
Insurance is always provided by the lender, but can also come from a standalone broker. With a standalone provider you can be assured that the insurance has not been added to your loan and interest charged on the resulting balance, as happens with some lenders’ insurance.
Other reasons for taking PPI from a direct provider rather than your lender are:
With direct cover you can pay the premium separately as a direct debit from your current account with no interest charge and you are free to cancel it when you wish without any financial penalty.
If you repay your personal loan early you will not receive a pro-rata refund on your insurance premium, as the premiums are front-loaded; in fact if you repaid a five-year loan after four years, the refund you would receive would be negligible.
There is no pressure to take out standalone PPI; you are in the perfect position to know your financial position and job security and can choose the type of cover that you feel best meets your circumstances.
The cover doesn’t have to be taken out at the start of the personal loan.
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