One of the most basic loan types, a personal loan is essentially when money is provided to a borrower, by a lender. Typically the borrower will pay interest with a repayment or repayments, though the loan length, rates and terms can vary greatly from one lender to the next.
Actual loan amount, APR and term may vary based on actual application details.
At On Stride Financial, we pride ourselves on providing personal loans to individuals in need of extra funds. We have designed a process focused on transparency, and one which provides a straightforward online application. And with variable loan amounts and terms on offer, an On Stride Financial personal loan is all about flexibility.
Our personal loans are unsecured, and available in amounts from £1,000 to £10,000. Customers can select a loan duration of 1 to 5 years, and with APR rates from 29% - 89%, which are determined by a customer’s unique history. Actual loan amount, APR and term may vary based on actual application details.
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At its most basic level, a personal loan is money borrowed from a lender, with the intention of being repaid in the future. Personal loans tend to be taken out by those in need of funding for their own personal needs, which can be extraordinarily varied. For many, the need for a personal loan can come in an emergency, such as a tree branch breaking the roof, a flooded cellar or a broken down vehicle. For others, a personal loan may be needed for sudden, unplanned bills. There are individuals who recognise a need to make improvements to their home, and will take out a small personal loan to cover those expenses in the short term, because they’re comfortable paying them back over a longer term. Even mortgages and car loans fall into the category of personal loans.
In a majority of cases, the borrower will agree to pay interest on the borrowed funds, at a percentage rate decided by the lender. Interest rates have become part and parcel of all loan types, primarily because of the understanding that lending money today means missing out on the potential for more money tomorrow. If a lender provides a borrower with a £1,000 loan, that’s £1,000 the lender can’t use in a way that might make him more money, for instance through investments. Thus, a lender will create an interest rate that will ensure a return on their funds.
"The borrower will agree to pay interest on the borrowed funds, at a percentage rate decided by the lender."
Another key element to the loan approval process is the agreed-upon repayment terms. Just as with interest rates, these terms can vary a great deal from one lender to the next, often depending on the loan type, the amount being lent and the borrower’s financial history. In a majority of cases, the lender will provide the funds up front, and the borrower will agree to a repayment schedule set by the lender. Often repayments will come in the form of set installment amounts, repaid weekly or monthly.
An important part of considering a personal loan is gauging the various types of loans, and what will work best for you. The three main types of personal loans — secured, unsecured and guarantor — all offer different features to their lender and borrower:
A secured loan is a personal loan that requires the borrower to commit assets as collateral, should they find themselves unable to repay the full loan amount. Assets can include any property that a lender considers worthy collateral — houses or cars are often considered adequate assets. Should the borrower find themselves unable to repay their loan, the repayment terms allow the lender to take these assets in lieu of payment.
“The three main types of personal loans — secured, unsecured and guarantor...”
On the other hand, an unsecured loan is a personal loan wherein assets are not committed by the borrower. This is an option often considered by individuals in need of funds who can’t claim any key assets. For lenders, the lack of collateral is often countered with an interest rate higher than that found with a secured loan.
Finally, a guarantor loan is a type of unsecured loan in which a lender asks the borrower to include a co-signer or guarantor on the loan. Should the borrower be unable to repay, the loan debt will fall to the guarantor to cover. This is a loan type often used by individuals who lack the credit to take on a more traditional loan.
Once an individual has determined the type of loan they want to take out, the next step is deciding whether to borrow from a bank or an alternative lending source. Each option brings its own unique details, which should be considered alongside the borrower’s own unique circumstances.
When it comes to banks, a borrower will typically have the option of both secured and unsecured loans. Where banks tend to differ dramatically from alternative lenders is in the details of their loans. For instance, bank loans typically come with cheaper rates, with APRs typically below 30%. Borrowing from a bank can also bring a larger loan amount, and a longer loan duration — often up to £25,000, with lengths from 1 to 7 years. However, in many cases banks can be more conservative with their loans, which makes for a stricter process, and fewer applicants getting the funds they apply for.
“Near-prime lenders reside somewhere between banks and short-term lenders, providing personal loans or lines of credit in the area of £1,000 to £10,000, with loan durations anywhere from 1 to 5 years.”
While the range of alternative lenders is varied and vast, in a majority of cases they can provide cash to approved customers who may not have access to traditional bank funding. With this convenience typically comes higher interest rates and smaller loan amounts, though this too depends on the type of alternative lender.
Short-term lenders — in some cases referred to as payday lenders — are ideally suited to help with emergency funding for necessary expenses. These lenders tend to bring the highest interest rates and the smallest personal loan amounts with the shortest loan lengths — typically from around £100 to around £2,000, for anywhere from a few days to 12 months.
Near-prime lenders reside somewhere between banks and short-term lenders, providing personal loans or lines of credit in the area of £1,000 to £10,000, with loan durations anywhere from 1 to 5 years. While these loans come with higher interest rates than banks, they also tend to come with lower APRs, and are often used less for emergencies and more for larger, necessary expenses.
Whether you’re considering a personal loan for emergency expenses or to cover substantial planned costs, the most important things you can do are research your options and make a plan. Even in the case of an emergency, taking on a personal loan should be done with care and consideration, because the commitment of taking on a loan — whether from a bank or alternative lender, whether it’s for £100 or £10,000 — is a big and serious one. It means agreeing to repay over a longer period of time, and repaying more than the loaned amount.
Budgeting before and during a personal loan is vital to repaying it responsibly. If nothing else, by assessing your current financial situation, you’ll have a clearer picture of the kind of loan you need and the kind of loan you should qualify for. Past that though, assessing your finances will give you a much clearer understanding of how much you’re capable of repaying — a massively important consideration when taking out a loan. Budgeting will also allow you to begin planning for your loan repayment before you’ve even taken a loan, finding areas where you can cut your spending and reapply your funds to the scheduled repayments you’re soon to take on.
“Assessing your finances will give you a much clearer understanding of how much you’re capable of repaying…”
Once your budget has been created, the next step is determining the amount of a loan you can reasonably commit to repaying. Bearing in mind that your loan will come with interest, what amount do you feel confident you can repay within the boundaries of your budget? And while the loan amount is a key determination to make, the length of your repayment period is no less important. Are you comfortable repaying a loan over two months? What about two years?
Making the commitment to take on a loan means assessing all your financial circumstances, and choosing a loan that fits them. While sudden unexpected expenses can lead to a sense of urgency, you’re far more likely to be able to repay your loan comfortably if you take some time to make the right assessments and choose a loan wisely.
Just as the details of a personal loan can vary from one lender to the next, the approval process can look very different depending on where you’re applying. In many cases, a lender will require that a potential borrower meet certain basic criteria to apply — for instance, that they’re 18 or older, and can show evidence of employment.
To begin the application process, you must decide the type of loan you want, and if you want to use a bank or an alternative lender. In some cases these decisions may be made for you, depending on the urgency with which you need to receive a loan, or limiting elements such as your credit history or a lack of assets.
“Ensure that the lender you choose is legitimate and trustworthy…”
Once you have settled on your loan type, take some time to research your lending options. Ensure that the lender you choose is legitimate and trustworthy, and that you won’t incur any hidden fees. In some cases, you can use comparison grids to analyse the rates, terms and details of a number of different lenders. Another option for determining the right lender is to employ a loan broker, who can help you consider which lender is best for your unique financial situation.
Once you have determined your lender of choice, familiarise yourself with the lender’s application process and the details of their repayment terms. If you’re concerned that you may not be approved with your lender of choice, be sure to have some backup options. But remember, applying with a number of different lenders could be information that ends up in your credit history.
For starters, there are three kinds of personal loans: A secured loan (requires assets), unsecured loan (no assets required, potential for higher interest rate) and a guarantor loan (unsecured loan requiring a co-signer).
While it’s a good idea to know what type of loan you would prefer, bear in mind that this decision could be made for you based on a number of variables, including your credit history, credit score, your available assets and the amount of the loan.
An important step to remember prior to applying for a loan is determining your credit standing, as this can play a significant role in the type of loan you’re eligible to take out. Check your credit score through one of the three credit bureaus — CallCredit, Equifax and Experian — and determine how it may effect your eligibility.
Next, decide on the loan amount that best fits your circumstances.
If it’s a larger amount, you will likely have the option of both secured and unsecured loans, and should consider a secured loan if your credit score is less than perfect (bearing in mind that you could lose your asset or assets if you fail to repay). Typically a secured loan has a lower interest rate. For those with better credit and/or a lack of assets, an unsecured loan may be the way to go.
For smaller loan amounts, chances are you’ll be taking on an unsecured loan. If your credit score is good, you should be eligible for a standard unsecured loan. If it’s not so good, you may need to consider a guarantor loan to get the funds you need.
Ultimately, taking on a personal loan is all about finding a balance between getting the funds you need and being able to make repayments based on your financial situation. A personal loan is a significant commitment requiring plenty of forethought and consideration. If you make a plan and stick to it, you’re far more likely to be able to repay on time and in full.
It’s not an accident that personal loans are called personal. Within reason, a personal loan can be spent on pretty much anything, as the funds are provided to you to do with them what you will. The sole commitment you make to a lender is that you will repay the loan in full by the date and time agreed.
That said, the type of personal loan you take, along with your personal financial situation, should play a role in the way you use your loan. An individual with a steady income, good credit and no debt is in an ideal situation to spend their funds however they want, whether it’s an addition on their house or a brand new boat. On the other end of the spectrum, an individual with less consistent or less substantial income, poorer credit and some degree of debt should be very careful about the way they spend their funds.
Essentially, in a case where repayment will be a very real challenge, a personal loan should be taken to cover an unexpected emergency, and not to frivolously spend on whatever strikes your fancy.
While this depends entirely on your lender, in general the answer is that, yes, many lenders will include certain fees with their loans. Here are the three most common fees associated with loans:
While this may seem like an excuse to take more of your money, the reality is that application fees exist for a reason: it can cost a lender money to assess an applicant. In some cases this is because of a credit check, in others it’s simply the cost of researching your general financial history. Either way, an application fee may be assessed by your lender, particularly in the case of unsecured loans. There are many lenders that do not charge an application fee, so before you apply make sure you understand the potential costs.
A key element of taking on a loan is forming an agreement with the lender to repay by a certain date or dates. Should you miss a payment or make one late, there’s a good chance they will charge you for it. The amount of a lender’s late fee is an important number to have prior to committing to them. Should you ever find yourself on the verge of missing a payment, be sure to discuss it with your lender. In some cases, they may reward your openness by dropping the late fee.
Though rarer, this is still a fee that can pop up depending on your lender. What it means is that, in the case of a missed payment, the lender will charge interest on the payment amount.
APR stands for Annual Percentage Rate, and serves as way for lenders to communicate interest rate information to potential borrowers. Because different lenders can employ their own unique interest rate structures depending on the length and amount of their loans, APR serves as a standardised number to indicate the interest rate you can expect to pay with your lender.
APR is a way for lenders to express the actual yearly cost of funds over the term of a loan. This number is typically shown as a single percentage, and allows potential borrowers to compare and contrast their lending options using a common element.
CPA stands for Continuous Payment Authority, a kind of automatic payment that accesses a borrower’s bank account using their debit card information. This is used to ensure payments on a loan are made, and is subject to agreed-upon terms between the lender and borrower. A CPA can be cancelled at any time by the borrower by contacting the bank or card provider and indicating that you would like to halt the CPA.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.