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With a personal loan, you have the freedom to dispose of the borrowed money without justification. You may want to finance your vacation or buy a computer, or even both. But that same freedom also means that you have the freedom to…

Personal Loans

What is a personal loan?

You can apply for a personal loan in several cases: you are short of money, you are planning a trip to the tropics or you want to buy the brand new television for example. With a personal loan, you can borrow money for many projects without having to provide a document justifying the reasons for the loan.

A personal loan is ideal when you want to finance the following projects:

  • Holidays
  • A wedding
  • The purchase of furniture
  • The purchase of electronic devices
  • Studies

For other types of loans, proof must be presented before receiving funding. The rate for these various loans is generally lower than that of a personal loan. The loans that require proof are as follows:

  • Construction loan
  • Energy Loan
  • Car loan (new, used, fuel-efficient)
  • Bike loan
  • Mortgage loan

In addition, many lenders offer you the possibility of grouping your different loans. This is called credit consolidation.

But a personal loan is never free. Anyone who takes out an instalment loan will have to pay interest. This interest rate represents a kind of compensation for the risk undertaken by the lender, as there is no guarantee that the money borrowed will be properly repaid. In order to better assess the likelihood of a good repayment, lenders are obliged to consult the blacklist. Thanks to this list, they will immediately find out whether you are on it for default.

The rates depend, among other things, on your situation, the lender and the amount of interest rates at the time your loan is taken out.

How does a personal loan work?

Once your personal loan application has been approved by a lender, you will be required to sign certain documents, including the contract and the SECCI form. The SECCI form tells you the type of loan and the Annual Percentage Rate of Charge (APR). The APR summarizes all the costs associated with a loan, such as the interest rate. Since you will not be asked to pay any additional fees with a personal loan, the APR is usually similar to the interest rate. In most cases, two copies of each document will have to be signed: one for you and one for the lender.

When everything is in order, the lender will be able to transfer the money to your current account, which may take a few days. The amount is contractually agreed upon, so that you know the amount in advance, even when the loan application has been made online.

Generally, the repayment period starts one month after the financing is put in place. You will therefore repay part of the loan amount as well as the interest. The duration of the loan is also fixed contractually and affects the interest rate, and therefore the APR.

How much can I borrow with a personal loan?

Many people are looking for the cheapest personal loan. To do so, it is essential to compare several lenders. The amount you can borrow also depends strongly on the bank. Some banks, for example, offer loans of at least £500, while others offer loans of at least £1,250. If you wish to borrow a smaller amount, you may also consider getting a credit card.

The maximum loan amount will be adjusted according to your profile. The lender will analyse your credit history, your ability to repay debts and your financial situation.

What is the cost of personal loan?

The interest rate on a personal loan depends on two factors: the duration and the amount of the loan. Most lenders try to give you the best advice about the amount borrowed and the term in order to offer you the best rates. Since a small or short-term loan doesn’t bring in much money, the lender will significantly increase the rates to make the loan more profitable.

On the other hand, a large loan or a long-term loan involves additional risks. In this case, since the lender takes more risk, he will want to receive additional compensation, which results in higher rates. If you want to know the impact of a larger or longer term loan, use our comparator.

What documents do I need for a personal loan?

The application for a personal loan involves a number of obligations. You must therefore be able to present certain documents. This way, the lender will be able to identify you. In other words, you must be able to prove your identity by means of an identity card or another valid identity document, such as a residence permit.

On the other hand, a large or long-term loan involves additional risks. In this case, since the lender takes more risk, it will want to receive additional compensation, which results in higher rates. If you want to know the impact of a larger or longer term loan, use our comparator.

What documents do I need for a personal loan?

The application for a personal loan involves a number of obligations. You must therefore be able to present certain documents. This way, the lender will be able to identify you. In other words, you must be able to prove your identity by means of an identity card or another valid identity document, such as a residence permit.

In addition, the lender will ask you for income certificates (one or more recent pay slips are preferred). If you are self-employed, you can prove your income with your income tax or annual accounts for the last two years.

Since an instalment loan does not require any documents justifying the reasons and the amount of the purchase, you do not have to submit invoices or similar documents.

How long will it take to pay off my personal loan?

You choose the term of your loan yourself, but there are legal limits. So the maximum term of the loan depends on the amount borrowed. For example, if you borrow £2,500, you must repay the entire personal loan within 24 months. This limit is extended to 240 months if the loan is over £37,000. Below are the repayment deadlines:

Maximum repayment term:

  • 24 months: £ 500 – 500
  • 30 months : 2.501 – 3.700 £
  • 36 months: 3.701 – 5.600 £.
  • 42 months: 5.601 – 7.500 £.
  • 48 months : 7.501 – 10.000 £
  • 60 months : 10.001 – 15.000 £
  • 84 months : 15.001 – 20.000 £
  • 120 months : 20.001 – 37.000 £
  • 240 months : 37.001 – … £ … £

Thanks to our personal loan simulator, you can play with different maturities and loan amounts. These two factors have a major impact on the rates you will get.

What happens to my personal loan in the event of my death?

In the event of death, the bank first checks whether the deceased is covered by outstanding balance insurance. This insurance protects your loved ones because, in this case, the outstanding debt will be reimbursed by the insurer. Outstanding balance insurance is not compulsory for an instalment loan. It is therefore possible to apply for a loan without this insurance.

If you do not have outstanding balance insurance, your inheritance will be used to pay off unpaid debts and the remainder of the inheritance will go to your next of kin. If the inheritance is not enough to pay off all the debts, your next of kin will have to pay the difference if they accept your inheritance. If he or she refuses, he or she will not have to pay the remaining unpaid debts.

Next of kin always have three choices when it comes to an inheritance: accept, refuse or accept with the privilege of obtaining a description of the estate. In the third case, a notary draws up an inventory of the estate. He or she draws up a list of unpaid debts and the deceased’s property. The next of kin can then decide to accept or refuse.

What happens if I’m blacklisted?

Anyone who does not repay their loan properly is blacklisted. Lenders are obliged to report any payment default to the National Bank’s Central Office for Personal Loans.

Once you are on the blacklist, you become less eligible for a loan. Indeed, banks are obliged to consult this list before granting a loan.

You can remove your name from this blacklist by repaying your debts. Lenders are then obliged to notify the Central Office for Personal Credit within eight days.

Do I have to take out insurance with a personal loan?

Banks sometimes offer to take out outstanding balance insurance with your personal loan. This insurance protects your loved ones in the event of your death. The unpaid debts (for which you have taken out insurance) will then be settled by the insurance and your loved ones will not suffer.

The outstanding balance insurance is by no means compulsory. When calculating the rate for your personal loan, whether or not you take out outstanding balance insurance is not taken into account. The interest rate on your personal loan depends exclusively on the lender, the duration and the amount of the loan.

Can I pay off my personal loan early?

You can repay all or part of your personal loan before the end of the contract. The banks may then charge you additional fees, called re-employment benefits. When calculating these charges, the banks must respect the legal limits. In addition, the remaining term of a loan is taken into account.

For example, you pay no more than 1% of the early repayment amount if the contract is for more than one year, and no more than 0.5% if the contract is for less than one year. So a person, wishing to make an early repayment for a remaining amount of £3,000, will have to pay a re-employment compensation of £30 to the bank if the loan has a duration of more than one year. But, if the duration is less than one year, this person will have to pay £15 in reemployment benefits.

In the case of a loan with a so-called variable interest rate, different rules apply. Indeed, the lender cannot demand re-investment compensation if you wish to make an early repayment when the interest rate is variable. These rules have applied since 1 December 2010. Different rates apply for contracts dating before that date.

What are the advantages and disadvantages of a personal loan?

A personal loan has several advantages and disadvantages. Here are the most important ones:

Advantages:

  • The main advantage of an instalment loan is that it does not require any justification. The most important thing for the bank is that you pay back the fixed monthly installments every month over the set period of time.
  • A second advantage is that a loan from a bank or credit institution is a reliable source of financing. You know exactly how much you will receive in advance. The monthly instalments are also fixed in a contract so you will never have any surprises. Finally, the APR is also known from the outset and is fixed in time.

Disadvantage:

  • The main disadvantage of a loan is its price. Indeed, the APR of a personal loan can vary from one instalment loan to another, and can sometimes be higher. With some lenders, you pay an APR of more than 10%. That’s why it’s essential to compare them. Fortunately, you can do this very easily with our comparator. With this tool, you can calculate the cost of financing. In other words, you will quickly know who is the cheapest.

In any case, we always recommend analyzing your financial situation before taking out a loan. That way, you avoid suddenly falling into a financial hole. Sometimes it is not even necessary to apply for a loan.

How can I take out a personal loan?

To get started, it’s very easy to click on the websites of some lenders via our loan simulator. You can do this by clicking on the orange “continue” button. The selected lender will then process your loan application. Generally, the interest rate indicated on our simulator is the one you will get from the selected lender.

If it is not possible to click on the lender’s site, you can visit their site and apply for a loan. With most lenders, it is possible to apply for a loan online.

If you prefer to get advice before signing a contract, you can visit the various local offices. There, an advisor will meet with you and take care of your file if you wish.

Is Compare really free?

All comparisons on Top Compare are completely free of charge. You can compare all banking products on our site without any limits.

Many visitors wonder how Top Compare is able to offer these comparisons for free. We earn a commission when you click on the website of a lender for a banking product, such as a loan or a current account. Moreover, the price of the product remains the same, regardless of whether you click on the provider’s site via our site or whether you go directly to the bank’s site or to a local branch.

Although we only charge a commission on a number of banks, we compare all banking products available from recognised financial institutions. After all, our mission is to help you make the best possible choices.