Many people find loans to be a useful tool at some point. They can be an excellent way of financing a step forward in your life, such as making an important purchase, or financing something that you would not otherwise be able to do.

When considering whether using a loan to achieve a goal is a good idea or not, you should look at the issues that may effect your decision:

• How much will the loan cost, and is it worth the cost to achieve the goal?
• Is this loan moving me forward, or is it an attempt to stay out of trouble?
• Can I afford to handle the repayments on the loan as well as any new commitments that might crop up in the future?
• Is there enough leeway in the payments for me to deal with the unexpected?
• Is the type of loan I'm considering the best type for the job?

There are a wide variety of loans, of course, and many of them, such as mortgages, have been covered elsewhere in this guide. In this section, we take a look at personal loans, and how they can be best used.

Personal loans tend to be a more expensive way of borrowing money. This is because they also offer the most flexibility - most personal loans can be used for any purpose. Since a person taking a loan is under no obligation to use it for a wise purpose, the risk to the lender is higher, hence the higher cost.

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When considering how much to charge you for a loan, the lender will generally take into account several factors, so the charge they make to you is very much based on your personal circumstances.

They will consider the period of the loan, that is, how long you intend to take to pay it back. Generally, the longer the term, the lower the rate of interest. However, as you are taking longer to pay it back, you will be paying more for the loan in the long run.

For more information about personal loans, please see our handy Guide to Loans.