Personal loans are a popular payment option, but how much do you really know about the borrowing process, and how can you be sure that you’re getting the best deal?
The world of personal lending can be overwhelming with so many different options available, making it challenging to choose the right one for you. Here at Hitachi Personal Finance, we’ve put together an ultimate guide to personal loans, to try make the lending process simpler, and get you completely in the know before you sign on the dotted line.
What is a personal loan?
A personal loan is money borrowed from a lender that is repaid monthly with a fixed term and rate of interest, so you know exactly how much the total amount payable is with no nasty surprises.
This type of loan is more appropriate if you want to take out smaller amounts to suit your needs. This prevents overborrowing as they are usually between £1,000 and £35,000 with a usual repayment term between one to five 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 balance.
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.
For further information on this and more, watch our video below:
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.
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 does Hitachi Personal Finance offer?
Here at Hitachi, 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. Our loans start from just 3.5% APR Representative between £7,500 and £25,000.
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