Personal Loans

When you want an expensive item - a new car, a stereo system, or a holiday - you have two choices. Save up for it or borrow some money to pay for it. A personal loan or 'hire purchase' can provide with money for those extra things that you can't afford to buy 'in one go'. It helps you spread the cost of larger items over several months.

To apply for a loan, you usually need to be over 18 and working for at least 16 hours a week.

Frequently Asked Questions

• Do you really need a loan?
• What types of loans are there?
• How much can you borrow?
• How do you repay the loan?
• Is it easy to get a loan?
• Do you know how much interest you will have to pay on a loan?
• How do you work out the interest rate?
• Do you know who offers the best deals - banks, building societies, finance companies, etc?
• Do you know who to ask for advice?
• What if you can't keep up with the repayments?

Usually saving for something is better than borrowing to buy it, because it doesn't cost you anything. (You have to pay interest on a loan.)

However, a loan means you can buy what you need straight away and sometimes you can still save money if you shop wisely. For example, it may be cheaper to buy something with a loan in the sales - even with the added interest - than pay the full price later on.

(As an alternative to a personal loan you could use your credit card - See Credit Cards - or apply for an overdraft at your bank.)

What types of loans are there?

Mortgages, personal loans (from a bank, building society, finance company or private moneylender), hire purchase agreements (this is similar to a personal loan and is arranged through a finance company).

How much can you borrow?

This depends on how much you earn. A good loan company, bank or finance company will only let you borrow what you can afford to pay back.

How do you repay the loan?

You usually pay a fixed amount every month for as long as the loan lasts. The number of months is decided before you take out the loan and it will depend on how much you can afford to pay each month.

The amount you pay depends on how much you borrow. For example:

You borrow £1,000
The interest is £178.40
You agree to pay your loan over 12 months
You pay £(1,000 + 178.40) ¸ 12 = £98.20 per month

Yes and no. It all depends on your financial circumstances and where you go for a loan. You can apply to a bank, building society, finance company, or private moneylenders for a loan. They will consider you earnings, how much you want to borrow and whether they think you can repay the loan.

Some moneylenders (known as 'money sharks') may offer you money easily, but they can charge such high interest rates that you can never afford to pay off the debt.

Do you know how much interest you will have to pay on a loan?

The interest is the extra money you pay back to the lender on top of the money you borrow. It is the first thing you should check out when thinking about a loan. Banks usually charge between 10 and 20% but some finance companies can charge well over 20% and private money lenders may charge a lot more.

How do you work out the interest rate?

To calculate the interest rate divide the amount of interest you pay by the amount you borrow.

For example:

You borrow £1,000
You pay 12 monthly payments of £98.20
The total amount you pay back is £1,178.40
You have paid £178.40 interest (The interest rate works out at 17.84%)

The best time to find out is when you need a loan. Perhaps you are buying a car. The garage may offer you a 'hire purchase finance deal' -for example, no deposit and so much to pay each month is a typical offer. Most garages recommend a finance company. Work out how much you will pay back in total.

Take these figures to a bank and ask the manager for a loan. Now compare the figures and see who offers you the best deal.

Do you know who to ask for advice?

Credit Action 01223 324034
Money Advice Association 0171 236 3566
National Association of Citizens Advice Bureaux 0171 833 2181

What if you can't keep up with the repayments?

Go and explain what has happened. Say that you can't afford the repayments at the moment, and explain why. You and your bank manager or the finance company should be able to come up with a solution together.

top

Student Loans

Frequently Asked Questions

• Do you really need a loan?
• Can any student get a loan?
• Do you know where to go for a loan?
• Do you know who to ask for advice?

A student loan is a bit different from a personal loan. It can be used for some extras but most students take out a student loan to cover basic expenses.

Can any student get a loan?

Most students on a full-time course, higher than A level but below postgraduate level (except PGCE) are entitled to a student loan, regardless of their income or their parents/guardian's income.

Do you know where to go for a loan?

The Student Loans Company, a government owned organisation. Ask at the Student Union office.

Do you know who to ask for advice?

The Student Loans Company (free phone help line) 0800 405010
Student Loans Company 0345 300 900
The Department of Education 0171 925 5000.
Educational Grants Advisory Service 0171 254 6251

top