Skip to main content

Three Important Factors to Consider Before Taking out a Personal Loan

Personal loans are considered an easy way to borrow money and can prove to be a good option when purchasing a holiday, a car, doing some home improvement or anything else that requires an up front lump sum payment. There are many advantages of taking out this type of finance, with the main one being that the loan repayments are fixed at the outset and so the repayments are set for the term of the loan. Unsecured personal loans are sometimes approved to bad credit borrowers and very often there are no background checks carried out.


The first important thing to consider before taking out a personal loan is to ask yourself do you really need to borrow that money at all? If the answer to this question is “yes,” you should decide on the amount in which you feel you need and one that is also realistic of obtaining based on your personal circumstances.  One important tip is to use a loan calculator online which will help you calculate the repayment costs for your loan. Taking out any loan is a long-term commitment and you should be confident that you can afford it and be absolutely sure that you can meet the repayments on time.

The second thing to think about is do you have any access to cheaper borrowing? For example borrowing through your existing credit cards, using your overdraft facilities of borrowing the loan amount from a family member. If the answer to this question is “no,” you should then start to discover options for unsecured loans. Unsecured loans are issued only be the borrower’s creditworthiness and not by a type of collateral. In general, borrowers must have a high credit rating to be approved for an unsecured loan.

The third thing you must consider is if you wish to take out payment protection insurance for your personal loan. Payment protection insurance will cover your payments if you are finding it hard to meet your payment deadlines through sickness or being made redundant for example. It sounds like an easy decision to make but payment protection insurance is generally speaking extremely expensive and can in some cases cost more than the interest on the actual personal loan itself.  It is personal decision you must make in order to decide whether it is worth the expensive price you pay for it.