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Guide to loans

Useful information

Loans guide

Helping you understand the basics

Lots of lenders offer loans. There are a few things to look out for when comparing products.
Read our guides for tips on finding the right loan for your individual needs.

Personal loans, sometimes called unsecured loans, are issued by the banks and other financial companies. They are different from an overdraft or credit card because they allows you to borrow a fixed amount over a fixed term, usually at a fixed rate of interest.

Unsecured or personal loans

These loans are available from a choice of lenders and are most commonly for between £1,000 and £25,000. They are not 'secured' against your home, and therefore may be suitable for a wider range of people and circumstances. These loans are available to those who meet the lender's criteria (a key criteria being a minimum age of at least 18).

The amount of interest you'll pay depends on the length of time you want to spread the repayments over and the amount you're borrowing. Sometimes it's also affected by your credit score or financial history.

 

Secured loans

These are loans that are 'secured' against your home. They are only available to people who own or have a mortgage on their home and who have enough equity in the property to secure against the amount they want to borrow.

In taking a secured loan, you're agreeing your home can be used as security against the debt and could be taken as full or part repayment of the debt if you were unable to make the agreed payments. Put simply, if you miss payments and slip into arrears, your home could be repossessed.

Some lenders may give a better interest rate on a secured loan, especially if you're borrowing larger amounts. However, you should compare all types of loan from a range of lenders before taking one out. And think carefully about the risk of losing your home if you were unable to pay for any reason

RBS do not offer secured loans

Payday loans


Payday loans have become more available over recent years. Some people find them useful if they need to pay an unexpected bill. However, you should only ever consider taking out one of these loans if you're certain you can pay it back quickly.

Payday loans can be very expensive. If you're late in paying back the loan, further charges and interest will apply.

Make sure you are aware of all fees and charges, and understand what could happen if you miss payments.

RBS do not offer payday loans.


Things to consider


Look carefully at rates. If two loans have the same APR, but are repayable over different lengths of time, the total cost will be different. The APR includes the total interest and other charges, per year. So if one loan is to be paid back over a longer period of time, that loan will cost you more in interest.

Make sure you can afford the repayments. The APR covers the cost of the interest and charges, but make sure you know the actual amount you'll be repaying each month, and whether the rate is fixed or variable. If it's variable it could go up as well as down.

If repayments are higher than you can commit to, you could think about extending the length of time you take to repay the loan. This will give you lower monthly payments, but will probably cost you more overall as you'll be paying more interest.

Be aware of all the charges. There can be more to the cost of a loan than the interest. Check if there is a penalty if you choose to repay the loan early. Sometimes there's a hefty interest charge or admin fee on the last month's payment. And, if you're late paying, because a Direct Debit bounces, for example, you may be charged by the loan company and your bank. So make sure you know about all charges up front.

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