Personal loan debt is a type of unsecured loan that can be used in several different ways, depending on your needs and circumstances. You might choose a personal loan to cover your car repairs, invest in home improvements, or to fund a one-off event like a wedding or your dream holiday. But despite their flexibility, personal loans can cause problems if your circumstances change unexpectedly, you start to struggle with your repayments, or you rely on loans to cover your everyday expenses.
If you think a personal loan might be the right finance option for you, you can apply to a bank or creditor online, by phone, via the post, or in a branch. Depending on your circumstances, you might be able to obtain a loan of up to £25,000. No matter the loan amount, you’ll typically need to repay it in monthly instalments over an agreed number of months or years. You’ll usually be charged interest in return, and the rate you receive will be based on different factors including your credit history, the loan amount, and the loan term.
Keep in mind when shopping for a personal loan that the interest rate advertised might not be the same one you receive – this will be a representative APR and the rate you’re offered might be higher or lower. Double-check whether the rate is fixed or variable; with a fixed rate loan, your payments will stay the same throughout your term, but a variable rate is more unpredictable. Your term length can also impact your monthly repayments: longer terms usually mean lower payments, but they’re not always the best deal as you might end up paying more in interest over time.
Personal loans can help or hinder your credit score depending on your current credit status and your behaviour during the loan term. Applying for a personal loan and taking on a large new debt can temporarily impact your score but, if you keep up with your repayments, it should recover quickly. If you use the loan to consolidate your debts and make payments on time, you could even see your credit score improve over time. However, if you fall behind or make several loan applications in a short time, a personal loan could negatively affect your score too.
Unsecured debts aren’t secured against any type of collateral like your house or car. This means they can be approved faster than secured loans and the lender won’t be able to seize any assets to reclaim debts without taking legal action first. On the other hand, unsecured personal loans can come with higher interest rates, and you might find it harder to qualify if you’ve had financial problems in the past.
Unsecured debts, like credit cards, aren’t secured against any form of collateral like your house or car. This means they can often be approved faster than secured loans and the credit card company won’t be able to seize any assets to reclaim unpaid debts without taking legal action first. On the other hand, interest rates can be higher with unsecured loans, and you might find it harder to qualify if you’ve had financial difficulties in the past.
There are many reasons why you might be struggling to pay your personal loan repayments, from an unexpected life change to increases in the cost of living. If you can’t find a solution and fall behind with your debt, you’ll receive a default notice. This is a letter that outlines how much you owe and how you can make up the missing payments. After two or three payments are missed – if you don’t take any action – the loan will default, and the lender will be able to take further action such as taking you to court or employing a debt collection agency.
If you’re facing financial difficulties, consider speaking to your lender first. They might be able to offer a revised payment plan or temporary pause to help you get back on track. You could also seek support from an expert debt advisor. They can talk you through your options and support you to find the right debt management solution for you.
A debt consolidation loan is a type of personal loan that you can use to pay off multiple debts. It works like a standard personal loan but, instead of using the funds to pay for a new kitchen or flight to New York, you’ll use it to pay off all your other debts. That way, you’ll be left with just one monthly payment with a fixed rate of interest. You might even be able to secure lower repayments if you choose a loan with a longer term or lower interest rate.
However, if you’ve missed payments or had a CCJ in the past, your credit score might need some work. In this case, you might only be able to find a secured debt consolidation loan. This is where the amount borrowed is secured against an asset like your home.
Speaking to an experience debt solution provider such as My Debt Plan has its benefits. We have a team of friendly advisors who offer debt help every day to UK residents.
We can talk through your options and support you to find the right debt management solution for you.
For free advice about your finances and the debt solutions available that can help you pay off your personal loan debts, call us on 0161 826 0585.
Tell us about your current debts and one of one of our experienced advisors will talk you through all the options available.
Dependant on your circumstances and financial situation, we’ll look at the solutions so you can choose an option that suits you.
Once you have chosen a solution, we will take the necessary steps to arrange this for you.
Lucy Novo Deakin is a licensed insolvency practitioner in the UK by the Insolvency Practitioners Association (IPA).
My Debt Plan Ltd provides insolvency solutions to individuals, specialising in IVA’s. All advice given is provided in reasonable contemplation of an insolvency appointment. Where you are not suitable for an IVA, we may refer you to one of our trusted partners who specialise on alternative solutions, and as such we will receive payment for the introduction if you enter into a debt solution with one of our partner companies.
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To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
*Our advice on your options is always free. We will always notify you if a solution you choose has any cost.
**Of 2,381 IVA cases approved between January-December 2023, the average expected write off assuming successful completion is 74%.
A debt write off amount between 25% and 75% is realistic, however, the debt write off amount will differ for each customer upon their individual financial circumstances and is subject to approval of their creditors. Any remaining qualifying unsecured debt in your IVA will be written off, however some unsecured debts will be excluded, such as court fines, child maintenance and student loans, therefore you will need to continue paying these both during and after the IVA.
