The world of personal lending can be overwhelming and with so many different options available, choosing the right one can be challenging.
Here at Novuna Personal Finance, we’ve put together a practical guide to personal loans to help make the lending process simpler and get you in the know before signing on the dotted line.
What is a personal loan?
This type of loan is more suited if you want to take out smaller amounts to suit your needs. This prevents overborrowing and they are usually between £1,000 and £35,000 with a typical repayment term between one to seven years.
What’s the difference between secured and unsecured personal finance?
When a loan is secured, the borrower pledges a valuable asset as security e.g. their house or car, which can be repossessed by the lender if the borrower fails to make their repayments. That asset can then be sold by the lender with the money raised used to clear some or all the loan.
An unsecured loan is backed with the borrower’s creditworthiness and paying capacity as there are no assets to repossess. If a borrower gets behind with their repayments, it’s then recorded on their credit file and could make it more expensive to or even impossible to borrow in the future.
What’s the difference between fixed and variable APRs?
A fixed APR does not fluctuate during the agreed term, offering more transparency when it comes to how much you will repay each month and throughout the life of the loan.
A variable APR will change with the index interest rate. This means that the interest rate on the amount you have borrowed can change during the loan period depending on the market performance, which means your monthly repayments can change. Our ultimate guide on personal loan interest rates goes into more detail.
What’s the difference between a personal loan and a credit card?
A personal loan is a straightforward way to borrow money with a fixed loan amount, interest rate, period over which to repay and a fixed monthly repayment amount. This means you will know exactly how much you will pay and for how long and paying by Direct Debit means you are less likely to miss making a payment.
Other forms of borrowing can be more complex whereby credit limits and interest rates can change, and you need to keep on top of what you are spending, making sure you make your monthly payments on time.
Why is it important to have a good credit rating?
Having and maintaining a good credit rating is crucial when it comes to lending. Not only will it show potential lenders that you’re reliable when it comes repaying what you owe, but you’re also more likely to get a competitive interest rate if your credit rating is good.
Reputable lenders will look at your credit score and your spending habits before they accept your loan application to assess whether you hit their criteria as a good customer. If your report shows that you are using your credit responsibly e.g. Not spending to the limit on credit cards or missing payments, they are more likely to lend to you.
What is responsible lending?
All financial providers are expected to exercise responsible lending in accordance with the FCA’s guidelines so that their customers are protected when they take out a loan. This means that the company will act in the customer’s best interests when it comes to affordability, changes in circumstances, vulnerable customers and being transparent with their T&Cs.
What personal finance options do we offer?
Here at Novuna Personal Finance, we offer our customers a range of personal loans to provide a helping hand with some of those bigger life purchases such as a new car, home improvements or to celebrate a special event. You can borrow between £1,000 and £35,000 with competitive rates from as low as 7.4% APR Representative (£7,500-£25,000).