How do personal loans work?

11 February 2011 - Which Way To Pay

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How do personal loans work?

A lender such as a Bank, or other financial company agrees to lend you a sum of money - anything from $500 to $25,000 and upwards, and you agree to pay that amount back plus interest, using regular payments over a pre-determined period of time, from between six months and twenty five years. Your loan repayment amounts gradually repay both the amount you've borrowed (the principle) and the interest.

Banks and other lenders will usually need a reason why you require the loan so that they can provide products that suit you. Most personal loans can be used for any legitimate purpose.

Before approaching a lender try to work out exactly how much you need to borrow and for how long. Often the longer the term of a loan, the lower the interest you pay, but, it may be cheaper to repay the loan quicker at a slightly higher rate.

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