# Guide to online loans

Most of us don't have the spare cash to buy a new fridge or a car, or even pay for a summer holiday. Instead we have to borrow the money - and that often means a personal loan.

You can usually borrow up to £25,000 with a personal loan over a term of between one and five years. The interest rates are fixed throughout the term, though they vary from lender to lender, making it important to shop around.

## Calculate the cost of the loan

The structure of personal loans makes them a good option if you want to fund a major purchase because you know exactly how much you can borrow, over what period and at what rate. In other words, you can calculate exactly how much the loan will cost. Let's say you borrow £5,000 over three years at 7.1%. The monthly payments will be £154.11 and the total cost of the credit will be £547.96.

## Lower monthly payments

If you lengthen the term of the loan, you lower the monthly payments. For example, the monthly payments on our £5,000 loan would drop to £98.72 if we extend the term to five years. Lower monthly payments look attractive, but there is a downside: the longer the term, the higher the total cost of the credit (you're paying back less each month, but for more months in total).

Using the same example, £5,000 over five years will cost £923.20 in total interest, £375.24 more than the same loan over three years.

## Clear the debt early

You can save money on interest if you are able to pay back the debt before the end of the loan term. But watch out for any penalties. If you took out the loan before February 2011, there is usually a fee for early repayment.  This fee is no longer applicable, so wouldn't attach to a loan you took out now.

## Rates for bigger loans

Lenders usually charge higher rates for smaller loans. So it can sometimes make sense to borrow a bit more, especially if you are near a rate threshold. For example, you might pay interest of 10% on a loan of £7,000 but only 6% on a loan of £7,500, in which case you might be better off with a bigger loan.

## Compare loan rates

Watch out for the availability of advertised rates. The headline rates for some personal loans can be tempting, but they are not available to everyone. In fact, the advertised or representative rate need only apply to 51% of successful applicants. In other words, about half will pay a different - higher - rate (to say nothing of the borrowers who have been turned away).

An internet application also allows you to complete the form in your own time and in private - away from the prying eyes of strangers.

You should always compare loan rates to make sure you are getting the best deal - and MoneySupermarket's free online service carries the details of hundreds of loans from the country's leading lenders, including banks, building societies, supermarkets and specialist loan providers.

You don't have to contact your existing bank, though it's always worth a try in case you are offered preferential rates as a loyal customer.

## Online loans

You can usually apply for a personal loan online, which can be a quick and convenient way to access your money. An internet application also allows you to complete the form in your own time and in private - away from the prying eyes of strangers.

However, the terms and conditions of the loan are not always easy to understand, so some people might prefer face-to-face contact. If your finances are complicated, it might also be easier to go into a bank or building society to sort out a loan in person.

## Struggling with debts

If you cannot keep up with your loan repayments you should contact the lender immediately to draw up a manageable repayment plan. Alternatively, get in touch with a free debt advice service such as Citizens Advice or the StepChange Debt Charity.

Personal loans are not secured against your property, so the lender cannot automatically repossess your home if you fall behind on the payments. However, you could end up with bailiffs at your door and the threat of legal proceedings.

## Alternatives to personal loans

Credit is not easy to come by these days as most lenders are selective about their borrowers. If you don't have any luck with a bank or building society, you could try so-called 'peer to peer' lending, where you link up with another person who is willing to lend you money.

Alternatively, you could contact your local credit union or consider a loan that is secured against your property.

Moneysupermarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.

Close