Considering a personal loan? Then check out our top 10 tips to ensure you get the best loan at the best rate.
Taking out a loan is a big deal, but knowing what to look for and shopping around for the best deal could save you hundreds, if not thousands, of pounds.
Here we list our top 10 tips for choosing the right personal loan to suit your circumstances.
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Before you take out any loan, you should always carefully read the small print and, if you’re not sure exactly what you’re signing up to, consider consulting an independent financial adviser (IFA) to advise you of the options available.
Not only will checking your credit report reveal to you how you look to prospective lenders, it also gives you the opportunity to correct any information that is wrong and give yourself the best chance of being approved.
If you are planning to take out a loan, it’s crucial that you make a budget and stick to it. You need to work out carefully how much you can afford to borrow without stretching you finances and ensure that you will be able to meet your monthly repayments. Download our guide to saving money in every area of your life for tips on cutting your everyday costs.
While it may be tempting to add a little extra to the loan amount to treat yourself, don’t do it. Borrowing more will cost you even more in interest in the long run, and you’ll likely be in debt for longer, so only borrow what’s necessary and resist spending more of tomorrow’s money today.
APR stands for annual percentage rate and is used to compare interest rates for borrowing and is the total (or “gross”) interest you’ll pay over the life of a loan including charges and fees. It also allows you to compare loans against each other more accurately. Companies are required by law to publish the APR, and to be considered the “typical APR” it must be the rate offered to at least two-thirds of the loan applicants that get approved for that loan. Before you sign-up for a loan, make sure you know exactly what rate you are being offered.
Some lenders may offer to defer your repayments for a few months at the start of the loan. However, you will still be being charged during this time and your future repayments will be larger to compensate. Your total amount repayable will be larger too, so avoid this if possible.
Because the profitability of your loan to the lender is calculated on the basis that you’ll be paying interest for a certain amount of time, paying off the loan early means the lender will hit you with an early repayment charge. So, if you think there is a chance you might be able to pay off your loan early, before choosing your loan, check the early repayment charges that different providers charge.
Payment protection insurance (PPI) is the latest scandal to affect the banking industry. Sold on the back of loans or credit cards, the idea behind PPI is that in the event of job loss, accident or injury, the PPI would cover your payments. PPI is riddled with exclusions - it doesn’t cover the self-employed, contract workers or pre-existing medical conditions that might prevent working. Many policies were even sold to people who were unemployed or retired and therefore didn’t have an income to protect.
If your loan provider asks if you’d like to add PPI to the loan, politely decline and don’t be persuaded to change your mind.
When you apply for a loan online, you can often get an instant decision, but don’t be tempted to apply for five loans in the same week. A record of each application you make is left on your credit report (known as a “footprint”), which lenders check before approving a loan. Having lots of applications on your record makes you look desperate and more of a credit risk, so your latest loan application is unlikely to be approved.
If you have a less than perfect credit rating, you are more likely to be approved for a secured loan than an unsecured loan because lenders see them as less risky. However, there’s a lot at stake when you enter into a secured loan agreement, and if you don’t keep up with repayments you risk losing your home. So don’t sign-up unless you’re 100% sure that you will be able to meet your repayments - read our guide to secured loans for more information.
“Balloon payment” schemes can be appealing to the cash-strapped borrower - you defer part of the payment until the end of the loan, thus reducing the amount you’re actually borrowing and the monthly payments. However, you still have to pay a final fee before the car is yours. Be realistic about whether or not you will be able to afford the final payment - if not, you could end up with a loan for far longer than you wanted or have to sell the vehicle to settle the “balloon payment”. Check out our guide to car loans.
THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP
REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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