If you need to additional money to start a business, to consolidate your existing debts, to buy a car or to pay for a holiday, a personal loan might be the answer. Every bank and building society has different lending criteria so it is important to investigate multiple options to ensure that you receive an loan that fits your needs. Many lenders specialize in loans to individuals with bad credit, so you might be able to get a loan even if you have declared bankruptcy or have county court judgements against you in the past. Personal loans can have a variety of structures. The key features of a personal loan are:

• The security required for the loan
• The interest rate (or APR)
• The repayment schedule

Types of Loans

One of the most important distinctions between different types of loans is the security required by the lender. Security refers to the collateral offered to the bank to lend money against. If you fail to repay your loan in the timely fashion, the lender will have the right to seize your collateral and sell it in order to repay the loan. High-quality collateral reduces risk to the lender and often results in a lower rate of interest on the loan. Individuals who have declared bankruptcy or otherwise have poor quality credit often find it impossible to borrow money without offering high-quality collateral as security on the loan.

Unsecured Loans

Unsecured loans are loans made to individuals which do not require any form of collateral since the credit quality and financial position of the individual is sufficient for the lender to extend credit without collateral. Most lenders limit the size of the unsecured loans to less than £15,000 or £25,000 without special credit approval.

Secured Loans

Most secured personal loans use excess equity in your home or other property, as collateral but other types of assets might be acceptable. Home equity is difference between the value of your home and amount of mortgage outstanding on it. Your home will be at risk if you fail to make repayments on loan, which uses your home as collateral.

Interest Rate

An interest rate is the amount charged for a loan. It is usually expressed as a percentage of the loan amount that is charged on an annual basis. Because lenders often calculate interest rates differently, statutory regulations set out the calculation for the Annual Percentage Rate of charge (APR).

The APR is the true rate of interest charged on a loan taking into account the total cost of interest and other charges (e.g. broker's fees / legal fees). The APR is intended to give consumers a level playing field to compare personal loans against each other. For information on how the APR is calculated, please refer to the website of the Office of Fair Trading (http://www.oft.gov.uk/).

Repayment Schedule

The repayment schedule on a loan stipulates the length of time over which the loan will be repaid and frequency of the payments. Together with the interest rate, this information determines the size of the loan repayments. For example, if you wish to borrow £5,000 over 3 years at an APR of 9.7%, the monthly repayments will be £159.77 and total repayment over the loan term would be £5,751.70.

Early Repayment Penalties

Some lenders levy penalties if you choose to repay the loan before its final maturity date. You should carefully investigate these charges if you think that you might want to pay the loan back early.