Ten Tips For Taking Out A Personal Loan
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Personal debt in the UK has recently passed the £1 trillion mark, and that figure is predicted to rise by another £10 billion in credit card bills over the coming months.
As we all invariably start to think about getting our finances in order, you might be thinking about taking out a personal loan. Don’t be put off by the array of options available, just check out our tips to ensure that you find a loan to suit you and to increase your chances of being approved without incurring any hidden costs.
Use our Loans Calculator and help find your ideal loan.
Please note however, that this is not financial advice, and you should always check the small print and think carefully before making any financial decisions.
1. Typical APR
You probably know that APR stands for “Annual Percentage Rate”, but you might not know exactly what it is or how it works. Companies are required by law to publish how much a loan or mortgage will cost you in interest per calendar year. This covers all the standard charges such as arrangement costs and annual fees, but doesn’t take into account any late payment fees or other non-standard costs.
To be considered the “typical” APR, the published percentage must be that which is offered to at least two-thirds of the loan applicants that get approved for that loan, therefore making it the typical rate offered. This does mean however, that a third of approved applicants are not offered this rate, so do double check the actual rate you’re offered.
2. Leaving a footprint
Applying for a loan online often means that you get an instant decision, but don’t be tempted to apply for five in the same week. A record of each application you make is left on your credit score, which lenders check before approving a loan. Having lots of applications on your record makes you look desperate and less likely to be approved.
Before you make an application, carefully check the lender’s criteria. For example, some companies want to know why you need the money, and won’t approve it for things like plastic surgery. Applying without checking could be needlessly adding to your credit footprint.
Check out our 10 Top Tips to help fix your Credit Rating.
3. Should I use my home to get a secured loan?
Secured loans – which are tenable against a particular asset, such as a house – have received a lot of bad press recently. While they obviously pose a risk to your assets, they are one way of getting access to cash, quick.
But be realistic with yourself. If you’re confident that you will be able to pay the loan back without putting your home at risk and need the money fast, then this could be a viable option. If, however, there is a chance that you won’t be able to pay it back, then it’s probably not a chance that you should be taking.
Click here to find and compare Unsecured Loan deals.
4. Paying off a loan early
Obviously, if you pay your loan back quickly, you will save on the interest you would have otherwise still been paying. But banks don’t really want you to do this so to combat this, you might be charged for early repayment.
5. Fixing your interest rate
Taking out a fixed rate loan gives you a set repayment rate for an agreed period of time, which varies depending on the size of the loan, and which protects you from rate increases and market fluctuations.
6. Income Protection
Income protection is an insurance product which provides a regular monthly income to people who become unable to work. It is advocated by consumer watchdog Which? and the Income Protection Task Force.
Otherwise, you could take out payment insurance which protects you from getting into debt if you lose your job, become unwell or have an accident but have insufficient savings to cover your repayments. However, Which? claims that income protection is a better choice of insurance.
7. Using a loan broker
Using a broker not only helps you to get the best deal, but can also increase your chances of being approved for a loan, especially if you have extenuating circumstances that could make you look unreliable on paper. They can take your personal situation into account and explain it to loan companies with whom they might also have special deals arranged. Click here to read our Frequently asked questions about loan brokers.
Have been rejected for a loan? Then get exclusive Loan Broker Help now.
8. Payment holidays and over-payment
Some loans and mortgages allow you to take payment holidays. These can range from a few months to a whole year depending on the type of loan you have.
These can be especially good if you’re planning on taking a break from regular employment, or are starting a family but will mean that you will be paying your loan back for longer. This can be counteracted by making over-payments (again depending on the loan type you have).
9. Consolidating credit cards
Using money from a loan to pay off large credit card balances can be a great way of making savings on interest payments. In a move against the “rate tarts” who continually move their balance around to avoid paying it off, credit card companies have begun to charge for balance transfers.
Even despite these new fees, loans generally have lower typical APRs than credit cards, so you should definitely consider consolidating your credit card.
Click here for more information on debt consolidation loans.
10. Car loans
Be careful when taking out a car loan. While “balloon payment” schemes can be appealing – you defer part of the payment till the end of the loan, thus reducing the loan amount and the monthly payments – you have to pay a final fee before the car is yours. Or you can trade it in, increasing your loan and continue paying. 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. Click here for car loan advise.
Contact us if you’re still confused about which loan is right for you.
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