How to decide if a personal loan is right for you
Mon 12 Jun 2023
Most people will need to borrow money at some stage in their lives. But before borrowing money, it's important to carefully consider your financial situation, to make sure taking a loan out is right for your personal circumstances.
What is a personal loan?
Personal loans, also known as unsecured loans, are where you borrow a sum of money from a lender and agree to pay it back over a set period of time, in fixed monthly repayments. The lender will charge you interest as a fee for lending you the money, so you repay the amount you borrowed plus interest. The benefit of this is you get cash up-front, but can spread the cost of a purchase over several months or years.
Why take out a personal loan?
Personal loans can be taken out for a number of reasons, including:
Consolidating debt is a common reason to take out a personal loan. It’s when you apply for a loan and use it to pay off multiple other loans or credit cards, combining all outstanding balances into one monthly payment. Grouping your debts into one could make managing your debt easier.
There are times when we might need cash quickly. Unexpected and unplanned expenses, such as car or house repairs, or your washing machine breaking down can be fearful, especially if you don’t have enough savings as a back up.
While it’s best to build an emergency fund to cover unexpected expenses, a personal loan can help if you’re not yet prepared.
Home improvement projects
A personal loan could help if you’re looking to make improvements to your home. This could be a big project like renovating your kitchen or building an extension for more space.
There are other ways of raising the funding for this, such as increasing your mortgage loan, if you have one, although your home will be used as collateral against a mortgage. In these scenarios, a personal loan can help you pay for the repairs over time.
Making a large purchase
A personal loan can help to finance a large necessary purchase, such as a new major appliance. While you can use a personal loan to help purchase a car, you can also get car finance which may have a lower interest rate. Car finance requires collateral, which means you could lose your car if you fall behind on repayments. Do your research and compare the rates available.
Pay for a major life milestone
A personal loan can help achieve your plans for any key life events, such as a significant birthday celebration, the wedding you’ve always wanted or going on a honeymoon.
How to decide if a personal loan is right for you
While a personal loan can be a useful way of borrowing money in some situations, it’s not always the best choice. There are lots of different ways of borrowing, so you need to make sure you choose one that suits your circumstances and that you can afford the repayments.
Before taking out a personal loan, ask yourself the following questions:
- Why do I need a loan? - Personal loans should only be used for necessary expenses. Ask yourself whether you
really need to borrow before applying.
- What is the cost of borrowing money? - Add up the total cost of borrowing, including all associated interest rates and fees, before making your decision. Look around for the lowest possible interest rate.
- Can I handle more debt? - Unless you’re looking for a consolidation loan, taking out a personal loan may not be right for you if you’re already struggling to keep up with expenses.
- Can I afford the monthly payments? - You should always think about your ability to repay your personal loan, which means calculating your monthly payment and factoring it into your budget. You can use the MoneyHelper loans calculator to estimate your monthly payment before committing to a loan.
Personal Loans for the Police Family
We aim to help the Police family lead a financially healthier and happier life, that's why we've partnered up with No1 CopperPot Credit Union to make you aware of some of their personal loans, available to serving and retired Police Officers, Police Staff, Police Specials and PCSOs.
Take a look at the range of loans available. You need to be a member of the Credit Union to apply for a loan. You can apply for membership within your loan application.
To become a member of No1 CopperPot Credit Union you must open a Member Account, which is a regular savings account. All personal loans are subject to affordability and lending criteria and are not a regulated consumer credit product. This does not affect your Financial Ombudsman rights. Loans must be repaid by your 70th birthday.
If you refinance any existing debts, you may pay a higher rate of interest or make repayments over a longer term. This means you may pay more interest overall.
Important things you need to know:
PMGI Limited will receive an introduction fee from No1 CopperPot Credit Union of 2% of the gross loan amount when the loan is paid into your nominated bank account.
PMGI Limited, trading as Police Mutual acts as an introducer for Number One Police Credit Union Limited who provide a range of consumer loan products for members. This introduction is not regulated by the Financial Conduct Authority.
No1 CopperPot Credit Union is a trading name of Number One Police Credit Union Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Firm Reference Number 213301. Registered number IP000078. Registered office: Slater House, Oakfield Road, Cheadle Royal Business Park, Cheadle, Cheshire SK8 3GX.
PMGI Limited, trading as Police Mutual, is registered in England and Wales, company number 1073408. Registered office: 80 Fenchurch Street, London EC3M 4BY.
Type of article: Articles
Category: Life events
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