Personal Loans

What is a Personal Loan?

Loans are usually arranged through banks, building societies or finance companies. The repayments are usually made on a monthly basis and the loans are not usually fixed to the purchase of specific goods or services. You may need not be a customer of a bank or building society in order to qualify for a loan from it although you may be persuaded to become a customer and a bank or building society's own customers would be able to show their credit standing more easily. Finance companies often ask you for security for the loan.

Does the Consumer Credit Act apply to Personal Loans?

Most personal loans for £25,000 or less are covered by the Consumer Credit Act 1974. The upper limit for agreements signed before 1 May 1998 is different.

Contractual rights for Personal Loans

You should check very carefully the terms of the credit agreement which set out the rates of repayment and interest rates. Reputable credit providers may adjust the repayments that must be made in line with changes in the interest rate. However, some agreements may state that the repayments will stay the same whatever the interest rate. This means that if interest rates rise, you could have a considerable lump sum to pay back at the end of the loan.

You should also check whether the bank, building society or finance company is charging an arrangement fee and whether there is a penalty for early settlement of the loan.

With some personal loans, you do not necessarily have to pay back the money in regular instalments. For example, the loan could be repaid in one lump sum by a someone who is waiting for the payment of a legacy or the proceeds of the sale of their home. In this case, the loan is usually called a 'bridging loan'.

What if goods or services bought with a personal loan are unsatisfactory?

If you buy unsatisfactory goods or services using a personal loan, or if there is another breach of the contract for goods or services, you have contractual rights and statutory rights to take action against the trader using the Sale of Goods Act 1979 or the Supply of Goods and Services Act 1982 (as amended).

Equal liability: The credit provider which provides a personal loan is not liable if there are problems with the goods or services that the client buys with the money.