Enabling online credit
for more people in the UK.

Sometimes described as a credit broker, a personal loans broker is third-party offering a service to those who want to borrow money. This means they are not a lender but someone who is providing a service for which you may be charged a fee.

A broker will find a lender who is willing to allow you to borrow money and many personal loans brokers advertise ‘unsecured personal loans for bad credit’, meaning, if your credit score is poor, they may still be able to secure you a loan.

Many credit-brokers run their businesses on the Internet, and some have come in for criticism because unless you look carefully, you might be under the illusion that they are direct lenders. Unless you are certain that you want to use the services of a broker you should never disclose your bank details as this is tantamount to signing up for the brokerage service. If you are happy to pay for a broker to find you a good personal loan deal be aware that they may take a fee for this service. A broker may also pass on your details to other brokers. If you do use a broker make sure that you opt out of this clause.

Just like lenders, brokers are authorised by the Financial Conduct Authority and are subject to the same rules as lenders. There is the same cooling off period (14 days) and under new regulations that date from January 2015, brokers must make clear exactly what service they are offering and state how much the fee will be. These details must also be given in writing.

Personal loans are becoming more flexible, and one of the ways this operates is when a loan agreement incorporates a payment holiday clause. A payment holiday is fairly explanatory. It means you can take a break from making the regular payments for your loan. This break might be at the start of the term loan agreement and could mean you do not start repayments for three months. Alternatively, you might be able to take a payment holiday during the term of the loan. e.g. if you are changing jobs and need to reduce your outgoings for a short time.

“Most of the time customers who want a payment holiday are struggling with their finances so a break wouldn’t necessarily be the best solution – a bit like putting a plaster on the problem rather than solving it,” says a spokeswoman from HSBC”.

Flexible personal loans that allow payments holiday are not necessarily a bad thing as long as you are aware that interest will accrue on the larger capital sum during the holiday period.
If you have a flexible personal loan and are aware that you may want to take a payment holiday at some point then making overpayments in advance will go towards mitigating the extra costs.

Did you know?

Payment holidays are sometimes used as an incentive to attract new customers. However, some lenders will not consider a payment holiday on an existing loan as they assume that you can’t make payments

Most people are now aware what PPI is and the scandal that has surrounded the mis-selling of this financial product. However, for the benefit of anyone who is new to financial matters and has never borrowed money it is worth reiterating what PPI is and how it works.

PPI is Payment Protection Insurance and is typically sold alongside the personal loan. The insurance is designed to pay either the full amount of a monthly repayment or a percentage of it. If you fall ill, have an accident or are made redundant, having PPI can be a good product as it means you will not fall behind in payments or get into serious debt. PPI is sold not just for personal loans but also for credit cards, store cards, car finance and mortgages.

Did you know?

PPI was often sold in with the personal loan without the knowledge of the customer. Or, it was sold as ‘essential’. The customer was led to believe that the loan would not be granted unless the insurance was taken up

Mis-selling PPI was a practice that took place during the 1990s and early 2000s. Lenders were selling the insurance to people who were retired and people who were unemployed thus negating the use of the product. Anyone who feels that they were inappropriately sold PPI can make a claim to get back the payments and any extra interest that were charged when the PPI was bundled together with a loan.

A cooling off period applies to all sales contracts and is especially important for financial transactions like taking out an unsecured personal loan.

The customer has 14 days in which to change their mind about taking out a loan and this period starts from either the time the contract is signed or when you have received a copy of the loan, whichever is the later date.

Did you know?

Cooling-off periods last for 14 or 30 days. During that time you have the right to change your mind about the investment. Never be afraid of exercising this right- source The Money Advice Centre

If you have decided that a personal loan is not the right product you do not need to give reasons for cancellation and can just notify the lender about your change of mind. Once the agreement can be cancelled, you have up to 30 days to repay the loan plus the interest that has accrued during the time that you have held the funds.

Some personal loan agreements have hidden charges, and one of these can be a setup or arrangement fee. A setup fee can be a fixed amount, or it might be a percentage of the sum borrowed.

Did you know?

A setup fee is often demanded when you want to take on a personal loan for debt consolidation

Most banks and direct lenders will not charge a setup fee but to make sure that there is no extra being charged it is important to check the small print of the personal loan agreement.

When you take out a personal loan through a third party broker, the setup fee should be shown in the agreement, and you should be made aware of the figure in writing before you sign.

There have been cases where a setup fee has been included in the total amount of the monthly repayments so always be sure to check before signing any agreement.

Sometimes called an early redemption penalty, a repayment fee can be an expensive charge that is incorporated into the terms of a personal loan.

Customers who want to repay their loans early can be charged extra for the privilege of getting rid of their debt. Typically, a redemption penalty will equate to one or two months interest, but regulations for loans taken out from February 2011 mean that fees are restricted and you can pay off up to £8,000 per year without incurring any extra penalty.

Beware fees!

If you do switch to a debt consolidation loan, be aware of any setup fees that come with the new loan – and of any early redemption penalties if the loan you want to pay off is above £8,000. There are no fees on early repayments on variable rate loans

The principal amount of a personal loan is the sum that you borrow before any interest has been calculated or added. The payment period is the length of time you have to repay the loan. This is usually between 12 month and 84 months.

When you take out a personal loan the compound interest, and the principal amount are added together and then the monthly repayment is worked out. As long as the terms of the agreement permit overpaying, it is possible to reduce the total number of repayments by overpaying a small amount of the principal each month.

To all intents and purposes, the answer to the question is yes. A personal loan may be taken out with a lender that is not a bank or from a high street bank that is well known.

However, the terms of each personal loan can differ greatly. Whichever lender you choose, an unsecured loan is usually the best choice to make because it does not put your home or any other asset at risk.

Each lender may offer a range of repayment periods, and the interest rates they charge can also differ greatly. If you feel more comfortable borrowing from a well-known lender, you can go to your normal bank, but you may not be offered the best rate or terms.

Lenders in the UK are all regulated by the Financial Conduct Authority. You can check out your potential lender by going to the Financial Services Register and confirm that the company concerned is fully authorised.

A credit rating or credit score is a point based system that lenders use to decide whether to offer a personal loan or any other kind of credit. The score might also have some impact upon how much interest will be charged and it can also affect how much you will be able to borrow.

When you sign an application for a personal loan, you agree that the lender can access your credit file which holds all the information about your borrowing and how you conduct your financial affairs.

e.g. late payments for utilities are recorded as are any late or missed payments for a mortgage, credit cards, store cards or any other loans

If you have several debts and the monthly payments are high, a lender might offer you a loan to consolidate your debt. This involves borrowing enough money to cover all your outstanding debts and rolling up the payments into one monthly amount.

Although this might be a tempting route to go down especially when you are struggling to make all the monthly payments, it should not be undertaken lightly.

Getting some impartial advice from a debt charity is always a good idea before entering into even more debt as you will almost certainly be repaying the loan for a longer period which will result in even more interest.

Representative APR is the figure that you will see when you look at advertisements for personal loans and credit cards.

Lenders offer the representative APR as a marketing tool but this does not mean that this is the rate that you will be offered.

Did you know Under EU rules, a lender must offer the representative APR to 51% of people who apply so if your credit score is not very good you may be offered a less desirable rate of interest.