Used wisely, loans are a powerful financial tool that can help you get what you want out of life. In this video, Dave Fleming, Head of Digital Loans at Lloyds TSB, talks you through personal loans and how they can help you sort out your finances and achieve your goals.

A personal loan is pretty straightforward – you borrow a sum of money from a lender and make monthly repayments over an agreed period, usually between 1 and 7 years. Of course, lenders don’t offer this service for free, so you’ll also have to pay interest and possibly fees.

Unlike mortgages or secured loans, personal loans are not secured against an asset, such as your home, so it’s less likely your home will be repossessed if you fail to pay. However, there are other consequences if you fail to pay – you’ll get a bad credit score, making it difficult for you to borrow money or get credit even for smaller things such as a mobile phone contract, and you could be taken to court to retrieve the money.
 

When you’re looking for credit, there are several options to consider:

• credit cards,
• overdrafts,
• secured loans,
• remortgaging your home,
• personal loans.

Each of these borrowing options is suited to different goals and purposes. To help you decide if a personal loan is the right choice for your situation, ask yourself these key questions:

• Do you need to borrow less than £25,000?
• Will it take you more than a year to repay?
• Do you prefer a fixed repayment schedule rather than a flexible one?
• Have you got a fairly good credit history?

If you’ve answered yes to some or all of the above, a loan might be suitable. A loan might also be helpful to consolidate your debts if you have outstanding balances on one or more credit cards, depending on the interest rate you’re paying. A personal loan can give you a structured repayment plan and fixed repayment amount which can often save you money on interest payments.