All manner of people and organisations borrow money from time to time. The reasons for borrowing are numerous as are the means by which money is borrowed. It is likely that any individual who wishes to borrow money will do so by way of an overdraft, a credit or charge card or a personal loan.

This section will focus on personal loans.

A personal loan is an amount of money offered, normally by lending institutions such as banks and building societies, on the condition that it will be paid back at some later date. Personal loans are available in a whole host of formats and can range from £500 upwards. The term of the loan is often dependent on whether the lender requires security to be offered by the borrower and the size of the regular repayments you wish to make.

Under most personal loan arrangements you receive a lump sum, equal to the amount of the agreed loan and in return you agree to make regular repayments. These repayments are normally monthly and cover both the interest due and the capital outstanding loan amount. If you elect to have repayment protection (which we look at later) then it may be added to the monthly repayment.

If you have established the loan as a 'repayment' type loan then the repayments will include an amount to pay off some of the capital and reduce your outstanding debt. Payments are made throughout the term of the loan to ensure that the total debt is repaid to the lending institution.

If you are looking to borrow money over a period of less than ten years, whether you need the money for a purchase or perhaps to repay existing debt, then a personal loan may be suitable for your needs.

Personal loans are just another form of credit. If you are considering a personal loan to run alongside other forms of personal credit such as overdrafts and credit cards, you must give careful consideration to whether you will be able to afford the total of your regular payments. When considering the situation it is wise to take into account your ability to pay were you unable to work due to illness or should you lose your employment.

Before you apply for any loan it is important to ensure that the amount you request is really needed. Although it may seem obvious it is important to limit the level of your borrowing. Paying off debt can be very expensive and the required repayments mean part of your future income is unavailable to use for other purposes, such as investing for your future needs.

In order to keep the overall level of debt under control, it is sometimes wise to consider using any savings you may have towards the purchase. It is unlikely that the investment return available from your savings will exceed the rate of interest charged on a personal loan.

The range of uses for the money is very wide indeed. Common uses include the purchase of a new car, a holiday or the repayment (consolidation) of existing debt.

Frequently the lending institution will ask for details of the reason you require the loan. Although the purpose of the loan may have little impact on their decision to grant the money, it can have some influence on the maximum term of the loan.

It is more likely that larger sized loans, for purchases such as cars, home improvements etc. will result in a longer repayment term. It is not uncommon for the purchase of a car to established with a repayment term of 3 years whilst the term for home improvement loans can be for much longer terms (sometimes as long as ten years).

There are hundreds of potential lenders willing to offer you the opportunity to borrow from them. However the offer of finance does depend upon your ability to repay the debt and your previous credit history. Those applicants that have had credit difficulties in the past can find it more difficult to obtain access to a personal loan compared to those applicants that have a better credit history.

It is normally true that the better the credit risk you are, the easier you will find it to obtain a personal loan. It is also likely that people who have the best credit histories will be offered the best deals. This normally means a lower interest rate is charged or the repayment terms are longer.

The lender determines the level of interest charged. The terms of the loan will be outlined to you in advance of you making a formal application. Due to large number of the potential lenders it is always wise that you consider the loan terms from a number of lenders before deciding upon the one to proceed with. The savings available by shopping around for the best loan deal can be substantial especially on longer-term loans.

The interest rates charged by the different lenders can be compared by reference to the APR (Annual Percentage Rate) charged. There is a legal requirement for lenders to provide details to the APR under the Consumer Credit Act (Advertising) Regulations 2004.

The APR was introduced as part of the Consumer credit act (Advertising). It is the only way to properly compare the difference in charges between all the various lenders.

The advertised interest rates quoted by lenders of mortgages, credit cards or personal loans normally only state the rate of interest that you are expected to pay each month or each year. However, since different lenders have differing methods of calculating interest it can be very difficult to make a comparison between the various products. This is especially difficult in those instances where interest is calculated over different periods (e.g. monthly or daily).

In order to make a proper comparison you should consider the APR. This will be quoted by all legitimate lenders and is usually displayed on adverts next to the headline rate.

The APR is a means of considering the total amount of interest payable over the whole term of loan regardless of the timing of when the interest is calculated and allows to you compare different loan products. When calculating the APR the lender must take into account all charges you would be expected to pay, as well as the interest that is due on the loan.

Basically there are two types of personal loan. Secured loans are those where you agree to offer the lender security over one or more of the assets you own, although usually it is your property. This means that the lender has the right to take ownership of the asset if you fail to make the repayments that are due under your loan agreement.

The advantage of a secured loan is that the lender's risk of default is reduced; this normally means that they charge a reduced rate of interest or accept a longer repayment period. In either instance it normally means you are required to make lower regular payments. You must carefully consider the risk of losing the asset, were you to fall into arrears with the required repayments, against the advantage of paying slightly lower regular payments (this is especially important if the security you offered was your home).

The alternative to a secured loan is one that offers no protection to the lender apart from their belief that you will be able to repay their debt. These are known as unsecured loans. The rates of interest charged are normally higher or the maximum loan terms are significantly shorter than those available for secured loans.

Before you decide on whether to have a secured or unsecured loan you must consider carefully the terms of the loan being offered to you. Always read the small print.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Most of us have seen adverts on the TV or in newspapers that promise to "consolidate all of your debt into in one manageable monthly sum". Although such an offer may seem like the perfect solution for people with existing debt, this form of arrangement may not be a good as the advert may suggest. Accordingly, you should consider the terms of any such loan very carefully.

Normally, for the new lender to be able to offer a large reduction in the repayments required from you they simply bundle together all your outstanding debt and replace it with one new loan. The reduction in your monthly payments is achieved by arranging for the new loan to be repaid over a longer timescale than the existing debt. This is the principal reason why the regular payments will appear lower than was the case under your previous commitments.

So although it might be suitable for you to "consolidate" all your debt into one new loan this sort of arrangement needs careful consideration before you proceed. You may find that you are required to convert your debt into a single secured loan. As is the case with any financial commitment care must be exercised. If you are in any doubt you should seek advice from a professional or perhaps talk to the staff at your local Citizen's Advice Bureau.

All reputable lenders will be licensed under the Consumer Credit Act (Advertising) Regulations 2004. This Act introduced strict controls about how money is lent and covers loans up to £25,000

Before you can complete your loan you will be asked to sign a credit agreement, it is important that you read the terms of the agreement carefully as you will be bound by the terms outlined in the document.

Although it is rare that the terms of the loan will demand you affect insurance to repay the debt were you to die or be taken ill, it is wise to consider how you would make your repayments were something terrible to happen. A number of insurance companies offer policies or payment protection schemes designed to protect you in the event of accident, illness or even redundancy.

If you are looking for insurance cover as protection for your loan repayments, it is very wise to shop around to obtain the most competitive insurance cover for your needs. Although most lenders will happily arrange cover for you, it is possible that you can obtain cheaper or better quality cover by looking to the specialist insurers.

The terms of your loan will be outlined in the credit agreement you sign at the time you first apply. This agreement will make it clear if any extra charges (early repayment charges) will be levied were you to repay your debt earlier than the end of the original loan period (known as the redemption date).

If you are considering the early repayment of the loan, i.e. before its redemption date, it would be wise to contact the lender to discuss the matter so you are fully aware of the implications of your decision.

Making repayments under personal loans is the same as servicing any debt you may have (including mortgages). If you find that you have difficulty in making your repayments, seek advice from your lender at the earliest opportunity. The earlier you tell them of your difficulties the more sympathetic they are likely to be. They may, for instance, accept a reduced repayment until your circumstances improve.

It is very important to understand that any asset you have used as security for a secured loan is at risk if you fail to make the regular repayments. Always read the small print.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

All reputable lenders will be licensed under the Consumer Credit Act (Advertising) Regulations 2004. This Act introduced strict controls about how money is lent and covers loans up to £25,000

Before you can complete your loan you will be asked to sign a credit agreement, it is important that you read the terms of the agreement carefully as you will be bound by the terms outlined in the document.

Each day a number of applicants are declined by the lenders. If your application is one of these this could be the result of the lender receiving negative comments from a credit rating agency. If you are declined you may wish to investigate with the lender which agency they have used. Once you the details of the agency you can contact them to ensure the information they hold about you is accurate.

All credit rating agencies will provide a breakdown to the data they hold on you. Obtaining such details is normally subject to a small administration charge but you will be able to check that any negative aspects recorded are properly attributed to you. If the information is incorrect you will be able to arrange for changes to be made.