Essentially borrowing a lump sum of money from a lender to buy a private item IE a car, kitchen, holiday etc. The money can be borrowed from mainly banks, building societies or private lending companies, which all have to be regulated by the Financial Services Authority (FSA). The amount you can borrow will depend on a number of factors such as your income, credit history and rating, what you want to buy with the money and whether you can put down any security (your house). Loans can be either secured or unsecured, the former meaning that the loan might be secured on your house (if you don’t keep up the payments you might lose it!), or some other type of fixed investment. While, an unsecured means that a form of security is not required.
With the unsecured loan, the interest rates are higher and there may be compulsory protection insurance such as PPI (Personal Protection Insurance) to cover illness and or redundancy. This is because this type of loan carries more risk.
There lending period for a personal loan is usually between 1 and 5 years. The shorter the period, the higher the payments, the longer the period, the lower the payments are.
As will all methods of financing read the small print, to find out how the interest works either fixed or variable, extra charges and what they are for, and penalties in the event of a non payment.