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Personal loan debt. How to deal with it.

When you take out a personal loan you borrow a fixed amount from a bank or creditor and repay in fixed amounts over an agreed number of months or years.

You know how much you need to pay back each month, and how long you need to make the payments for.

Interest is charged on most loans. The rate of interest will depend on a number of different factors, including the amount of money you’re borrowing, the term of the loan and your credit rating.

Most personal loans are unsecured, which means the loan isn’t secured against your home. Secured loans carry a higher risk as your home may be repossessed if you fall behind with payments.

Dealing with personal loan debt

If you're struggling to pay your loan or have arrears, you should first speak to your lender to see what help is available. They may be able to agree to let you catch up with any arrears or offer a payment break, but this depends on the lender and your agreement.

signpost iconAre you looking for information about guarantor loans? This is when someone else, such as a family member or friend, agrees to repay the loan if you can’t afford the repayments.

If you don't pay your loan arrears you'll be sent a default notice, which gives you an opportunity to catch up with your arrears. If you don't take steps to deal with the debt the loan will default, usually after 2-3 missed payments.

Once the account has defaulted your creditors can take action to get you to pay them back. This includes:

It's important to take steps to deal with the arrears to prevent your situation getting worse. You may feel under pressure to make payments you can’t afford, or be worried about the action creditors can take, but we can help you deal with your situation.

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What should I consider when taking out a loan?

If you're considering taking out a personal loan you should make sure you're aware of exactly what type of agreement you're entering into. Some of the main things you should always look out for are:

The interest rate of the loan

Loans often have an advertised interest rate or APR. The rate you'll actually get depends on the type and duration of the loan and your credit rating. You might not always get the interest rate advertised, so be sure to check this once you've applied.

Some personal loans have interest rates that vary. If you're looking for a loan with fixed payments that don't go up or don't then you shouldn't look for this type of loan as the payments could become unaffordable.

The term of the loan

If you take out a loan over a longer period of time you may find that the payments seem lower. However the longer the period of time you borrow the money for, the more you’ll pay back in interest.

Taking a loan out over 10 years might lower the monthly payments, but before agreeing to the loan you should question whether you still want to be paying the loan back in 10 years' time.

Compare loans and consider your alternatives

Always make sure you compare lenders to make sure you're getting the best deal on a loan, rather than accepting the first loan you're offered. You can use comparison websites to help you do this.

Credit unions are often a more affordable alternative to banks, or expensive payday loans. They sometimes offer loan rates that are cheaper than elsewhere and they may be more willing to help people on a low income, who have poor credit or who don’t have a previous record of borrowing.

Many people take out personal loans to consolidate their debts. To find out whether this is right for you, use our debt consolidation calculator.

Do I need a loan?

Most importantly you should work out whether you actually need a loan. Some people take out a loan to pay for high cost items, such as a car, holiday, wedding or to consolidate their debts.

Loans can be a tempting prospect to help you get what you want more quickly, but you should always consider whether you need or could save up and budget carefully for the item instead of taking out a debt. 

We can help if you have personal loan debt

If you’re struggling to pay your loan, or any type of debt, we’ll be able to help you. Use our online debt advice tool or call our debt advisors (free from all landlines and mobile networks) to get free debt advice that’s tailored to your individual situation.