Page last updated at 10:03 GMT, Friday, 8 June 2007 11:03 UK

Choosing a personal loan

Calculate the cost of your monthly repayments
Calculate the cost of your monthly repayments
BBC News explains the ins and outs of choosing a personal loan.

Taking out a personal loan is the standard way of borrowing money from a bank, building society or specialist loan company.

You can usually borrow up to 15,000 for anywhere between six months and 10 years depending on the health of your finances.

Loans can be secured or unsecured. A secured loan is one that is tied to your house - which means you might have to sell your home if you can't keep up with repayments.

Unsecured loans are not tied into anything, but if you default on your repayments you could end up being credit blacklisted. This could prevent you taking out new credit cards, a mortgage or even taking advantage of an interest-free deal in a shop.

Making comparisons

To get the best deal, shop around. In general, the more you borrow, the lower the interest rate will be, but rates vary from around 7% up to 20%.

Finding the best loan
Shorter loans = less interest
Only apply for one at a time
Check the small print for penalties
Consider loan insurance in case you fall ill

You don't have to go to a traditional bank or building society, many good deals are offered through supermarkets, so shop around.

Be careful when comparing products as lenders calculate the annual percentage rate (APR) in different ways. Loans for specific items such as new cars are also available, often with lower interest rates.

When comparing APRs, make sure that you're comparing like with like. Don't pay attention to the monthly interest rates advertised by shops - these are always lower than the annual rate and can mislead you into thinking you've got a better deal than you really have.


If you are refused credit you could check your credit history to make sure no mistakes have been made

Loans are repaid in monthly instalments over an agreed period. This amount of time is usually fixed and if you want to pay off the loan earlier you might have to pay a penalty. The longer the repayment period, the more interest you will pay, so go for the shortest one you can manage.

Flexible loans, which let you pay back the money whenever you want, are becoming more common but the interest rate charged is often higher.

The most important thing is to make sure you know exactly what the monthly payments will be, and how much you will pay back in total.

Remember that if your bank or building society does turn down your loan application, it is obliged to explain the main reasons for doing so.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

The BBC is not responsible for the content of external internet sites

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Americas Africa Europe Middle East South Asia Asia Pacific